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The Growth of Large Fortunes 



A Study of Economic Causes 




AFFECTING THE 



Acquisition and Distribution of Property 



BY 



G. P. WATKINS 



[Thesis presented to the University Faculty of Cornell University 
for the Degree of Doctor of Philosophy by George Pendleton Watkins. 
Reprinted from the Publications of the American Economic Association, 
November, 1907 ; in its monographs, Third Series, Vol. VIII, No. 4.] 



A-^' 



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CONTENTS. 

CHAPTER I. 

Page 

Preface v 

Introduction : The Need of Studying the Subject and the 

Meaning of the Phrase "Large Fortunes" i 

CHAPTER n. 
The Forms of Ownership and the Incidents of Income from 
Property, especially Large Income, in the Light of 

Economic History and of Recent Tendencies 8 

§ I. Production and Acquisition 8 

§ 2. Direct Income from Wealth and Abstract-Property 

Income 15 

S 3. The Incidents of Income from Property Historically 

Considered 28 

§4. The Constituent Elements of Large Fortunes 37 

NOTE TO CHAPTER IL 
Corporate Securities and Evidences of Indebtedness in the 

United States 52 

CHAPTER III. 
Recent Economic Conditions and Tendencies in Production 
AND Exchange as Related to the Growth of Large 

Fortunes 59 

§ I. General View of Large-scale Production and of In- 
cremental Income 59 

§ 2. Landed Property 65 

§ 3. Mineral Resources 88 

§ 4. Foreign Investments 93 

§5. Manufactures and Large-Scale Production 95 

§ 6. Commercial Advantages of Large-Scale Business, 

including Combination 104 

§7. Dynamic Conditions in Industry 106 



§8, 

§9 

§10 

§11 

§ 12 



Transportation 108 

The Modern Commerce of Capital no 

Speculation, Professional and Other 113 

The Economics of Government 121 

Interest Rates and Tendencies 125 



iv Contents. 

§ 13. The Outlook for Small Savers and for the Small- 
propertied Middle Class 130 

Summary 140 

NOTE TO CHAPTER III. 
An Analysis of Lists of Millionaires (compiled by the 
N. Y. Tribune and the N. Y. World) in the United 
States 14 ' 

CHAPTER IV. 
Certain Peculiarities of Economic History and Conditions 

IN the United States 148 

§ I. The Background 148 

§2. Development of Great Economic Possibilities 150 

§3. Socio-economic Characteristics of Americans 153 

CHAPTER V. 
Summary and Conclusion i57 

List of Books and Articles Cited 164 



PREFACE. 

The following- study of the economic causes of large 
fortunes was conceived of an occasion and was written 
under the pressure of belated examinations in Cornell 
University for the degree of Doctor of Philosophy. It 
is of more general scope and bearing than is usual for 
the Meistcrstiick of an apprentice in science. But the 
writer hopes that the lack and the need of a comprehen- 
sive and scientific study of the subject may excuse the 
ambitiousness of his attempt to think through one phase 
of this so characteristic, complex, and portentous phe- 
nomenon of the present day. 

Of obligations directly relating to the writing of this 
essay, the author knows of none of signal importance. 
But the publication of a doctoral dissertation is an ap- 
propriate occasion for reviewing in thought the years 
of study whose completion it marks. For recognition, 
inspiration, and support throughout this time, I would 
gratefully acknowledge my accumulated indebtedness to 
Professor Walter F. Willcox. I would also cordially 
acknowledge, though of necessity in general terms, large 
and varied obligations to my other teachers and associates. 

Ithaca, N. Y., November, 1907. 



CHAPTER I. 

INTRODUCTION : THE NEED OF STUDYING THE SUBJECT, 
AND THE MEANING OF THE PHRASE "lARGE FOR- 
TUNES." 

"The nature and causes of the wealth of nations" have 
long been subjects of scientific interest. It is to be ex- 
pected th'it a science shall begin with the things most 
accessible to the understanding, that is, the merely objec- 
tive parts of its field. Wealth as undergoing processes 
of production exhibits more kinship with physical phe- 
nomena than wealth in process of distribution, that is, as 
undergoing assignment to the uses and purposes of indi- 
viduals. But it is time that the causes of the welfare and 
"fortune" of individuals should receive a share of atten- 
tion. In relation to these causes arise those problems of 
distribution which are now the subject of lively and 
growing interest. Questions relating to the causes of 
large fortunes are also of immediate practical as well as 
of scientific interest. 

No thorough study of the general subject of large 
fortunes has yet been made. It is necessary, therefore, 
to study not merely concrete conditions, but also general 
causes and underlying general principles. There is no 
possibility of appeal to an already developed and accepted 
formulation of these. Theoretical analysis, although it 
must assume some acquaintance with actual conditions, 
is a necessary preparation for the detailed study of the 
insistent facts. 

Ours is an age of new and striking characteristics. 
Not all the differences, it is true, between present and 

735] 1 



2 American Economic Association [73^ 

previous conditions, have come from the introduction of 
entirely new elements. But quantitative developments of 
things not absolutely new have been of themselves suffi- 
cient to give to long known factors a new face and a new 
power. 

On the side of technology we are often told that this is 
the Age of Steel or the Age of Electricity. The world's 
production of iron and steel is about fifty times what it 
was in the year 1800. And the more highly manufactured 
product steel is becoming more and more the beneficiary 
of the universal application of the products of iron ore. 
Not only are the steel rail and the steel ship fundamental 
for modern transportation, but the structural parts of 
our machines, of our factories, and even of our homes 
are coming to be of steel. From the blade of Damascus 
to the steel frying pan is a long step into the Age of 
Steel. So much for the material. What of the mo- 
tive power? Electricity has lately become the great 
means of transporting persons for short distances and is 
invading the general field of steam transportation. As 
a motive power in manufactures it has already achieved 
much and is gaining faster than any other form of 
energy. It lights our streets and many of our homes. 
And yet we are only at the beginning of the Age of 
Electricity. 

On the social and economic side the age has its marked 
characteristics. There are more great fortunes, and there 
are greater fortunes, than the existing nations of the 
Western World have ever before known. ^ By abuse of 
political power Rome's proconsuls may have wrung from 

^ For certain salient points in the evidence for the increase of 
large fortunes and for the concentration of wealth, see an article by 
the writer on "An Interpretation of Certain Statistical Evidence of 
Concentration of Wealth," Quart. Pub. Am. Statistical Assn., March, 
1908. 



737] The Growth of Large Fortunes 3 

subject peoples private fortunes as great as those of our 
own time. Modern great fortunes, however, have come 
as a phase of a beneficent process of industrial and com- 
mercial development. The causes of these fortunes are 
essentially economic rather than political. It is an ob- 
vious inference that their appearance is probably corre- 
lated with our modern developments in technology and 
industrial organization. 

In technology and industrial organization the United 
States leads the world. In the size of its great fortunes, 
also, the United States appears to lead. J In most respects 
the United States represents the "modern" tendency in 
the highest degree. It is therefore appropriate that, al- 
though the phenomenon which we are to investigate is 
general, the economic causes of large fortunes in the 
United States should be given special attention. 

Large fortunes are the fortunes of rich men. English 
speech tends to develop a special term "riches"^ to desig- 
nate large fortunes, thus recognizing the distinctive char- 
acter and the importance of this social phenomenon. In 
the conception of riches there are three elements that call 
for particular notice. 

To be rich one must possess wealth or property in con- 
spicuously large amount. The "large fortune" is a more 
or less relative quantity. The "rich" farmer would not 
be called rich in a great city. The rich of former days 



* The process of differentiation between the meanings of the 
words "riches" and "wealth" is by no means complete and there 
is always operative against it the influence of certain foreign lan- 
guages whose vocabulary is not so complex as ours. But one feels 
that such an expression as "national riches" is not good present-day 
English. The word "riches" is by origin and meaning an abstract 
term, and grammatically a collective noun. But usage, false to 
etymology, by treating it as a plural, gives to it a factitious sugges- 
tion of concreteness. 



4 American Economic Association [7 3 8 

would not even be "respectably poor"^ in New York City- 
to-day. It is necessary that the fortune be in any case 
sufficiently large to enable its possessor to live without 
dependence upon income from his own labor. But we 
have long passed the stage where to possess a competence 
is to be rich. A competence is an absolute amount and 
essentially a reserve and a provision for old age. Riches 
are relative and are conspicuously large. Where there 
are rich men, there are inequality and contrast of eco- 
nomic condition. 

Riches yield a conspicuously large income to their 
possessor. The rich are rich in productive or income- 
yielding property, that is, in capital or capital-value. 
The income may, as in land speculation, take the form of 
an increase of value instead of an increase of goods. But 
a man is called "land-poor" who is unable at need to 
realize currently upon such an investment, even though 
it may be likely ultimately to yield a good return. The 
importance of this connotation of large income — for it is 
connotation rather than essential to the definition of large 
fortunes — can hardly be exaggerated. 

Large fortunes are matters of private law. They are 
property. They pertain to particular persons. Goods 
or wealth as such need belong to no one. They are 
objectively and impersonally conceived. But riches are 
a private right and cannot be conceived without reference 
to an owner and to legal relations. Riches are personal 
attribute and power based on goods. Their conspicuous 
magnitude, however, differentiates them from small 
properties. 

Riches, in short, are differentiated from wealth or 
goods qualitatively by the inclusion of a certain legal 

*The phrase some New Yorker, who was merely several times a 
millionaire, recently applied to himself. 



739] ^^^'^ Growth of Large Fortunes 5 

viewpoint and relation. They are differentiated from 
private property in general quantitatively by their con- 
spicuous magnitude, and by the consequent receipt of 
large income not due to labor. In the concrete, riches are 
large private fortunes. 

A postulate of any scientific theory of the causes of 
large fortunes is that those causes are impersonal. That 
is, they must be such as permit of being made the basis 
of generalizations. "Pull" and privilege are not such. 
Neither can the causes of the change in the degree of 
development of riches lie in human nature or in inequality 
of natural endowment. Men in general are not appre- 
ciably different from what they have been. Changes in 
human nature, like changes of animal species, are secular. 
Inequality of faculties, it is true, may have become more 
effective. But if this is so, it must be because of changes 
in external conditions. These external causes are doubt- 
less economic. 

Not much weight can be given to the allegation that 
the men who get rich do so because of their unscrupu- 
lousness, or because their competitors are not given a 
"square deal", in other words, because of moral defects 
either in themselves or in those in power. Unscrupulous- 
ness and unfairness are not new. Nor are they of a 
nature to play a decisive part in any general social phe- 
nomenon. They do not determine the amount of the 
harvest from productive efforts. They probably affect 
but little the size of the shares to be distributed. They 
may affect considerably a particular individual's success 
or failure in getting for himself the larger share or the 
better opportunity. "Plunder" is both process and pro- 
ceeds. But it is a process of transference of wealth, or 
of acquisition, not of concentration. The proceeds are 
conditioned by the amount of available material. There 



6 American Economic Association [740 

is much more wealth to steal now and doubtless more 
stolen than formerly. It is probably also true that plun- 
dering is now better organized than formerly, for ex- 
ample, as monopoly or as "rigged" speculation, so as 
sometimes to reach out systematically to fleece many. It 
thus becomes sometimes a means of concentration as 
well as of acquisition. But increase in the scale and 
effectiveness of organization here are but a reflection of 
a general progressive tendency in economic society which 
doubtless multiplies much more the legitimately than the 
illegitimately obtained great fortunes. 

It is quite possible that the makers of fortunes are men 
who, whether by nature or because of the straitened cir- 
cumstances and narrow outlook of their early life, espe- 
cially because of lack of educational opportunities, have 
a distorted perspective and a wrong scale of values, in 
which the material and pecuniary are given undue weight. 
But the decisive facts must still be the conditions under 
which they exercise their powers, or perhaps prove their 
limitations. The material opportunities are there. What 
particular individuals make the most of them and what 
qualities of mind and character enable them to do so are 
of much practical importance. How the successful indi- 
viduals get the prizes is matter for moral judgment, for 
praise or blame. The business of economics, however, is 
only to show that the prizes are there and why they are 
there. We must seek the causes of the recent growth of 
great fortunes in conditions of production and accumula- 
tion. The causes of the general phenomenon are imper- 
sonal and economic. 

The great impersonal economic causes of the growth of 
large fortunes the writer conceives to be simple and clear. 
The relative weight of the various constituents of the 
total wealth and property and the importance of the dif- 



74 1 ] The Growth of Large Fortunes 7 

ferent kinds of income have been undergoing marked 
changes. As regards the character of ownership, there 
has been a shift from more democratic to less democratic, 
or less necessarily democratic, forms of property right. 
The craftsman working with his own tools and materials, 
and the tradesman with a watchful eye on the condition 
of each article of his stock of goods, have been largely 
superseded by the capitalist whose laborers own neither 
tools nor materials and who learns of the state of his 
property by following the stock-exchange reports in his 
newspaper. As regards the forms of production and of 
gainful occupation there has also been a shift from those 
where conditions are more democratic to those where they 
are less democratic, both as to technical requirements and 
as to organization. Power-driven automatic machinery 
has largely superseded tools, and the regimental organiza- 
tion of factory hands has hindered the all-round develop- 
ment of men. Finally the bringing of all goods to market 
and the measuring of all things in terms of money have 
put the man who knows markets — the "business man" — 
in command of the situation, while increasingly dynamic 
conditions in industry have multiplied his opportunities 
for gain. These are the fundamental clews to the argu- 
ment of the following chapters. 



CHAPTER II. 

THE FORMS OF OWNERSHIP AND THE INCIDENTS OF IN- 
COME FROM PROPERTY, ESPECIALLY LARGE INCOME, 
IN THE LIGHT OF ECONOMIC HISTORY AND OF RECENT 
TENDENCIES. 

§ I. Production and Acquisition. 

The production of goods is the primary economic pro- 
cess. It is fundamental. But it is so fundamental, and 
remains so much merely at the beginning, that it is a poor 
example of the highly evolved processes that we regard 
as characteristically economic. Production is a physical 
fact. Only with the recent great development of the 
exchange economy has it come to be viewed by many as 
the creation, not of valuable things, but of an abstract 
quantum of value. ^ For most men it fortunately still 
remains the creation of valuable things. But the base of 
a structure never more than suggests some features of 
what it supports. It does not reveal the essential charac- 
teristics. For clews to the explanation of modern eco- 
nomic processes we should look to the market. 

Production is the creation of valuable things, or of 
valuable capacities in things. But there are other ways 
of getting concrete valuable things. Exchange suggests 
itself as an obvious alternative. This normally supposes 



^ The importance given to this distinction in Bohm-Bawerk's dis- 
cussion of the Productivity Theory of Interest is significant of the 
dominance of the market measure of things. 

8 [742 



743] The Growth of Large Fortunes 9 

previous production in order to be able to render an 
equivalent. But this is not necessarily so. The smith 
acquires needed food by exchanging the implements and 
weapons he has produced. But his boy, while playing on 
the beach, may have found a pearl, and that also gives 
power of acquisition. The medicine man receives his 
means as a tribute to his supernatural power. The dif- 
ference between producing valuable things and acquiring 
them through exchange is likely to involve important 
social relations. 

Acquisition is reciprocal to production, the contrasted 
other end of the market process. It is primarily the 
obtaining of economic control of existing values. 

Production and acquisition are different stages or 
phases of the economic life of goods. Production is the 
beginning of the economic process. Acquisition comes 
later and is looked at from the point of view of the 
culmination of the process. A good is produced once ; it 
may be acquired many times. Acqusition is an economico- 
legal fact. The conception is closely related to that of 
private property. Indeed, there is a juristic theory that 
the essence of all private property is "occupation", that is, 
bare acquisition, whether with or without production. 
Acquisition is, at any rate, the threshold of private prop- 
erty right. Production, on the other hand, is economico- 
technical in nature, a process in which the physical facts 
bulk largest.^ 

The conception of acquisition rests upon that of ex- 
change. Exchange of goods by their producer for goods 
wanted for consumption is the fundamental case of ac- 



^ The distinction between production and acquisition seems to be 
familiar in German economics, though not used exactly as developed 
here. Cf. Roscher, Grundlagen, Bk. IV, ch. i., § 148; also Phillip- 
povich, Grundriss, Bd. I, 2. Buch, § 39, "Produktion und Erwerb." 



lo American Economic Association [744 

quisition. But the acquirer need not himself have pro- 
duced the goods with which he acquires others. If he 
has produced still other goods, the equivalents of those he 
now parts with and themselves acquired by production, 
the relation to production remains the same. Acquisition 
may be any number of stages removed from production, 
and still production on the part of the acquirer may be its 
presupposition and basis. Such acquisition indirectly by 
means of production may be called acquisition by pro- 
duction. 

Since acquisition is, in a modern economic society, 
almost inevitably, result and purpose of production, it is 
a very slight extension of the thought to apply the term 
to those cases of production where the product completes 
its economic period in the hands of the producer. In this 
case the two ends of the economic course of goods come 
together and coincide. The farmer may be said to 
"acquire" the products of his farm or kitchen garden. 
One is said to acquire whatever he obtains, whether by 
his own production or by exchange. Since, juristically, 
all economic goods have an owner, and ownership begins 
with their existence, all are acquired as soon as they are 
produced. In this usage acquisition becomes the broader 
term which covers all forms of production. Production 
by man is, from this point of view, only a very important 
method of acquisition. 

It is obvious, once the distinction between the two is 
made, that there is no necessary coincidence or corre- 
spondence between facts of acquisition and acts of pro- 
duction. Acquisition may be by gift. And there are 
gifts from nature as well as from man. In the case of 
the gift from nature, of course, no one has produced that 
which is acquired. In the case of a gift from man the 
giver has usually acquired by production that which he 



745] The Growth of Large Fortunes ii 

gives. But there is no act of production on the part of 
the receiver, no own-production. When attention is 
called to the fact that acquisition by inheritance is essen- 
tially acquisition by gift, it is seen how large a part 
acquisition without own-production plays in economic 
society. When we consider the amount expended by 
parents, without expectation of return in product or 
service, on the education of their children, we see, also, 
how fundamentally important for civilization and social 
progress are certain forms of acquisition without own- 
production and without remuneration.^ 

Acquisition is the broad genus of which acquisition by 
production and acquisition without own-production are 
sub-divisions. A man's production, moreover, is less 
inclusive than his acquisition by production. Production 
is the physical fact. It is the foundation, but only the 
foundation, of a series of legal and economic relations. 

Economic evolution is, in one of its aspects, a process 
of development and superposition upon each other of 
successive modes of acquisition. This is in part only 
another way of looking at the development of the ex- 
change economy. In the primitive economy most pro- 
ducts, chiefly products of the soil, were consumed within 
the family or small social group where they were pro- 
duced. Commerce was first developed only in some very 
valuable articles, chiefly the ornaments and luxuries of 
the rich. Later, as production became specialized, the 
producer exchanged more or less with other producers. 
With the development of modern means of trade and 
transportation, it has become the practice, even on the 
part of the agricultural population, to turn most products 
into money. These changes have become of decisive im- 



*The great class of paid personal services may be left out of 
account for the purposes of the present essay. 



12 American Economic Association [74^ 

portance quite recently. The number and the variety of 
middlemen have multiplied, and the proportion of the 
total product of human industry which they handle at 
least once — most of it many times — has vastly increased.^ 

Middlemen are still looked upon with suspicion by 
many of the "producing" classes. Though trade has 
established its standing in the opinion of men as well as 
in the world of facts, it has not altogether shaken off 
the traditional dislike of olden times. Nor was the 
unfavorable view of the ancients without reason. Trade 
involves profit from a succession of acquisitions by ex- 
change. It is natural to view such a process as unpro- 
ductive, for men do not readily see that goods may gain 
in utility without changing form. Mere speculative 
gains, too, have always been important for the merchant, 
and their economic and moral status is even yet not quite 
settled. 

In the merely mercantile transaction the egoism of 
man is purer and clearer than anywhere else. The ego- 
istic point of view dominates the market. That a man 
should have exclusive regard to his own ends in his 
treatment of goods is no ground of offense. But when, 
in his dealing with other men, he is guided merely by 
calculation of gain, he can expect little sympathy. Yet 
this tendency is what trade throws into the foreground. 
The merchant, moreover, is specially skilled in valuing 
and bargaining, and so his gain is often more than pro- 
portional to his service. There is more need of bridling 
the desire for gain in commercial dealings than in pro- 
duction in the narrower sense. 

As regards the fundamental productivity of transpor- 

* Cf. Biicher, Entstehung der Volkswirtschaft. He makes forms 
and degree of exchange the fundamental criteria of stages of evolu- 
tion of economic society. 



747] The Growth of Large Fortunes 13 

tation and exchange, however, modern scientific analysis 
has clearly established that much. They serve the im- 
portant purpose of creating place- and time-utility. Still 
there is in trade a possibility of social waste, or worse, 
that is not present in strictly industrial activity. The 
trader seeks to supply not valuable things so much as 
abstract value. This latter he may increase by decreas- 
ing the supply of valuable things. If custom, or other 
factor, gives him any monopolistic power, he has a motive 
to increase profits by keeping down supply. In trade, 
furthermore, competition often takes a form that causes 
an increase of outlays until cost equals return, instead 
of a form that reduces the net return through increasing 
the supply until price declines to cost. 

We have followed far enough for present purposes 
the development of the distinction and difference between 
production and acquisition. We are concerned with it 
here only in relation to the causes of large fortunes. 

The freeing of acquisition from the limitations of 
own-production is a fundamental fact in relation to the 
size of incomes and possessions. If whatever is acquired 
through own-production may be supplemented by other 
kinds of acquisition, it is obvious that the possibility of 
large acquisitions is multiplied. So far as production 
remains individualistic — as comsumption must always re- 
main — the difference between the productive powers of 
one pair of hands and those of another, like the differ- 
ence in digestive capacity between two stomachs, cannot 
be very great. Neither such power nor such capacity, 
however, sets appreciable limits to degree of inequality 
in acquisitions. The modern organization of industry 
on a large scale has, by making the plans and decisions 
of one mind the critical factor in the joint productive 
operations of thousands of hands, enormously increased 



14 American Economic Association [74^ 

the possible value of an individual's effort. But it has 
not yet fixed the market value of the productive powers 
of any man at more than about $100,000 a year. Yet 
there are many men with incomes many times that sum, 
incomes of course not imputable to their own productive 
effort and often acquired with an entire absence of per- 
sonal effort. What does a difference of a hundred or 
two hundred times amount to in comparing the many 
who possess only their personal effects, with the million- 
aire? There are doubtless men living in the United 
States to-day who possess 50,000 times the property of 
the average American farmer — the man of our propertied 
middle class. On comparing for large classes inequal- 
ities of income from labor with inequalities in the pos- 
session of property and thus in the receipt of its income, 
we find a great difference. The man just inside the 
upper tenth as regards the receipt of salaried income is 
twice as well off as the man at the middle of the line. 
This is the condition among the employees of the greatest 
industrial corporations and among male teachers in the 
public schools of our cities — two representative classes. 
In mere wages, as tested by various occupations requiring 
all degrees of skill, the multiple is somewhat less. But, in 
respect of skill, the multiple is somewhat less. But, in 
respect of property and its income, the man just inside 
the upper tenth is perhaps ten times better off than the 
"middle" man as regards the possession of property. The 
man who is one in a hundred in respect of the amount of 
income received from personal effort may be three times 
as well off as the middle man of his kind. But the man 
who is one in a hundred in the matter of the possession of 
property is perhaps one hundred times better off than the 
middle man as regards the possession of property.^ 



Following is a table of selected cases to illustrate characteristic 



749] The Growth of Large Fortunes 15 

Income from personal effort is subject to an economico- 
technical limitation which hinders concentration. It is in 
the field of income from property or capital that acquisi- 
tion without own-production finds its great scope and 
causes the increase of large fortunes. 

§ 2. Direct Income from Wealth and Abstract-property 

Income. 

There are two ways in which the ownership of instru- 
ments of production, or of an equivalent, may be made 

degrees of inequality in the distribution of the two different kinds 
of income. The test employed has the advantage of brevity as well 
as that ,of making possible the convenient use of certain material 
from the 12th Census Special Report on Employees and Wages by 
Professor Dewey. 

The data for the first division of the table are obtained from the 
above mentioned Report at pp. 616, 624, 640, 666, 668, 672, 674, 685, 
764, respectively. These are the occupations for which wages of as 
many as 5000 males 16 and over are reported for 1900. Rates for 
iron and steel mills, given in the Report for two weeks, as used in 
the table have been divided by two. 

On the basis of facts furnished by Mr. George W. Perkins, Mr. 
E. J. Edwards, in the American Monthly Reviezv of Reviews for 
September, 1905, p. 341, reports as follows : "Upon the pay-rolls of 
that [United States Steel] corporation, not including those who earn 
what is called wages, there are to-day 166,205 names. Of these 
122,690 receive salaries of $800 or a little less ; 43,987 receive salaries 
ranging between $800 and $2500; 1308 receive salaries ranging from 
$2500 to $5000; 156 receive salaries ranging from $5000 to $10,000; 
51 are paid salaries ranging from $10,000 to $20,000; and 13 are 
paid salaries of $20,000 or more." The total is evidently a misprint 
for 168,205. This must include many female employees. 

The approximate median and approximate upper centile are obvious 
from inspection of these figures. I interpret the phrase "receive 
salaries ranging between $800 and $2500" in the light of the context 
to mean that the $800 salaries are put in the class below and the 
$2500 salaries in the class above. An estimate of the amount of 
salary that marked the upper decile might be obtained by assuming 
an even distribution between these two limits. The arithmetical 
operations required would then be indicated thus : $2500 — 



1 6 American Economic Association [750 

to yield income. The owner may himself superintend 
the processes and administer the instruments of produc- 
tion, that is, he may act as entrepreneur; or he may give 
into the charge of another the active direction of industry 
and retain for himself only a specified amount of income, 
with security for his principal. From this point of view 
there are two kinds of capitalistic income, the one in- 
volving active participation in industry, the other not. 



(15292/43987 X 1700) equals $1909. But the assumption is obviously- 
false, for the number of salaries becomes progressively more numer- 
ous as the specific amount becomes less. Experience with such a 
type of distribution indicates that it is fairer to assume that the 
number of cases decreases regularly in a geometrical rate, instead of 
arithmetically, with each equal step upwards in salary. The number 
receiving a salary one step above that of any class will probably be 
nearer to an unchanging fraction (say yi) oi the lower class than 
to an unchanging absolute number. According to this assumption 
what is wanted is the number of which the logarithm is : Log 2500 — 
[15292/43987 (Log 2500 — Log 800)]. The number is 1682. The 
upper decile is thus estimated at $1682. 

The data for teachers are obtained from tables at pp. 17, 19, and 21 
of the National Educational Association's Report of the Committee 
on Salaries of Public School Teachers. The statistics for female 
teachers are excluded on account of being not comparable for present 
purposes with other statistics used. The classes of the original tables 
are of conveniently small range ; hence, since there is probably a great 
deal of concentration on the round numbers at the class limits, ap- 
proximate percentile figures are here used without attempting to get 
more definite results by interpolation. 

The data for Massachusetts probated estates are to be found in 
the report of the state's Bureau of Statistics of Labor for 1894. The 
percentiles are obtained by the use of the logarithmic method de- 
scribed above. These Massachusetts figures conform by actual test 
to the assumption involved, that is, the average of each class of 
estates as arranged by size is practically always nearer to the geo- 
metrical than to the arithmetrical mean between the limits of the 
class. 

The data for France are for the years 1903 and 1904 and are from 
the Annuaire Statistique de la France. They have been used in the 
form compiled by the writer in his article on Statistical Evidence of 
Concentration of Wealth. They are obviously much more inclusive 



75 i] The Growth of Large Fortunes 17 

A related distinction is implicitly contained, though 
not clearly developed, in the use made of the words prop- 
erty and wealth. Wealth is concrete. It is a collection of 
goods. "Property", on the other hand, is an abstract 
legal conception. It is a right, specifically differentiated 
as a right or claim to wealth. Economics is primarily 
interested in wealth, that is, in goods themselves and in 
what is to be done with them. Property law is concerned 

of small estates than the Massachusetts figures, and they are net 
and thus more accurately representative of actual values for such 
estates. 

Data for Comparing Degrees of Inequality in the Distribution 
OF Income from Labor with Degrees of Inequality in that 
OF Property and Income from It. 

Distribution of zvages (per week) of males, 16 and over, in various 

lines. 

Number Lower Median Upper Upper 

of cases decile decile centile 

Cotton mills 5,038 $4-50 $7.00 $12.50 $22.50 

Woolen mills 5,023 5.50 8.50 14.50 25.00 

Agricultural implements 14,807 8.00 11.00 I5-S0 20.00 

Car and railroad shops. 11,435 7.50 11.00 17.00 22.50 
Foundries and metal 

working 43>343 6.50 11.00 18.00 25.50 

Iron and steel mills 26,183 5-00 11.00 IQ-SO 42.50 

Shipyards 10.873 7.50 12.50 18.00 24.00 

Breweries 4,660 9.50 14.50 18.50 25.50 

Tanneries 6,010 6.50 9.50 13.50 20.50 

Distribution of salaries (per year) in the U. S. Steel Corporation. 

Number Median Upper Upper 

of cases decile centile 

168,205 A little less Calculated A little less ( ?) 

than $800 at $1,682 than $2,500 

Distribution of salaries (per year) of male public school teachers in 
/]6/ cities of the United States. 

Number Lower Median Upper 

of cases decile decile 

6,744 $650 $1,200 (plus?) $2,000 or above, 

perhaps $2,300 



1 8 American Economic Association [752 

with rights in, or claims to, goods. The thing is weahh, 
and property right is but a relation to it, and that not 
necessarily close and active, but often held in reserve. 
It is an abstract right to the usufruct of goods which 
remains even when every particular period of concrete 
use is sold. 

Abstract-property income and direct income from 
wealth are names descriptive of the two different sorts 

Distribution of property in estates probated in Massachusetts. 

Years Number Lower Median Upper Upper 

of cases decile decile centile 

1829-31 3,698 $936 $7,299 $50,000 

1859-61 6,922 1,784 13,390 125,400 

1879-81 1 1,142 2,240 19,510 184,400 

1889-91 14,608 2,386 18,740 166,000 

Distribution of property in estates in France according to net value. 

Number Median Upper Upper 

of cases decile centile 

767,633 1,292 francs 16,290 francs 199,300 francs 

In making the comparisons made possible by this table the criterion 
must be relative, not absolute. Convenient relative numbers are 
the ratio of the upper decile, or the upper centile, to the median. 
It will be observed that, in the statistics of wages, the upper 
decile is always somewhat less than twice the median, and in 
one occupation of the nine it is little more than one-fourth greater. 
In the distribution of salaries the upper decile is approximately 
twice the median, the inequality thus being not greatly different from 
that prevailing among wage-incomes. But there is a great gap 
between this and the prevailing distribution of income from property. 
In the Massachusetts probate statistics the upper decile is eight or 
nine times the median, and the error is doubtless in the direction of 
under-statement, since the figures are not net, so that large deduc- 
tions for debt should be made from the smaller estates, and also 
since many very small properties do not pass through the courts. 
Among French estates the upper decile is thirteen times the median. 
More reliable tests, less influenced by the above mentioned sources 
of error, indicate a considerably less degree of concentration in 
France than in Massachusetts or Great Britain. (See the writer's 
article cited above.) The present method is not applicable to the 
British statistics, where small estates are given only gross while large 
estates are given only net. If exactness be insisted on, allowance 



753] The Growth of Large Fortunes 19 

of capitalistic income.^ The entrepreneur's income is 
partly income from personal exertion, but he also has, to 
the extent that he employs his own rather than borrowed 
capital, capitalistic income in the form of direct income 
from wealth. The "money-lender", or the bondholder, 
and, for the most part, the stockholder, derive abstract- 
property income from their capital. The line between 
the two cannot be drawn with absolute sharpness, for the 
investigation and knowledge incidental to intelligent 
placing and withdrawal of investments passes over by 
indefinable gradations into the actual oversight of in- 
dustrial processes. The extensive legal right of the 
stockholder of a large corporation to determine the ad- 
ministration of his own property is, however, in abey- 
ance, and is intended to be so, except at critical occasions 
in long intervals. 

The line of distinction between the two forms of capi- 
talistic income is the less definite because the differentia- 
tion is a rather recent development, and the process 
is not yet completed. Abstract income from property is 
still with difficulty conceived by itself. Men still incline 
to the ''whole-produce-of -labor" theory; they think man 
is the only economic cause, that only he can produce 
income, and that whatever assistance the human pro- 
ducer gets from things merely increases his production. 
Hence they are especially prone to overlook the produc- 
tiveness which is the foundation of abstract-property 

must be made for the fact that there are many more families without 
appreciable income from property than without income from labor. 
It is safe to say that for the upper decile to be actually only ten times 
the median in the case of any considerable body of statistics of the 
the distribution of property the inequality must be unusually small. 
' While income from property, as the term is commonly used, 
is not exclusive of direct income from goods, the term abstract- 
property income may well be restricted to this one species of capital- 
istic income. 



20 American Economic Association [754 

income. But capital does produce. Whether the owner 
is absent or is directly associated with the production does 
not affect this fact, though it does make it necessary to 
distinguish two sorts of income from capital. Though 
in practice doubtful cases will be found, the criterion of 
the distinction is clear. The crucial question is whether 
an owner himself administers the productive instruments 
from which he derives an income; or whether, giving 
over to others the possession and management of the pro- 
ductive wealth, he retains for himself only certain prop- 
erty rights and a corresponding income, which is usually 
fixed and often as far as possible without risk. 

The gradual differentiation of interest from profits in 
the development of economic theory has been a reflection 
of the factual evolution of abstract-property income. The 
"profits" of Adam Smith"^ and the English classical 
school are direct income from other than landed wealth, 
including also what is due to the administrative activity 
required. Only with the development of modern methods 
of production involving the use of borrowed capital, and 
with the payment of interest for loans as an established 
institution, has the entrepreneur come to charge himself 
interest for his own concrete wealth employed in produc- 
tion under his own management. This he does as a 
matter of bookkeeping, and in view of the possibility of 
lending the money. 

The acute stage in the prohibition of "usury" came at 
the beginning of the separation of abstract-property in- 
come from the administration of productive wealth. 
Capital had attained to such importance as made the 
separation of its ownership from its administration a 
fruitful device in the association of productive instru- 



^ For his undifferentiated view of interest, see Bk. I, end of ch. vi, 
of the Wealth of Nations. 



75 5] The Growth of Large Fortunes 21 

ments with corresponding capabilities. For real estate 
the need was met by the creation of rent-charges and 
by the development of the mortgage under cover of a 
pretence of sale. For money lent at interest adaptations 
and evasive devices were more complex. Men have 
always cherished a dislike for derivative income, of which 
abstract-property income is the great modern instance. 

Tools are usually directly and democratically owned. 
The capitalistic requirements of modern industry, how- 
ever, are such that it would be impossible for the needful 
enterprises to be carried on by single entrepreneurs or 
small partnerships supplying their own capital. The 
legal evolution of abstract-property income has been just 
as much a condition to the existence of modern industry 
as have been invention and the applications of physical 
science. The distribution of ownership does not coincide 
with the distribution of ability, not to speak of inclination, 
to administer the instruments of large-scale production. 
Effectual inequality in both these powers has put an end 
to that rough coincidence in their distribution which goes 
with comparative equality in both. By devices of the 
market, developing parallel with exchange in general, the 
functions of the one-time capitalist-entrepreneur small 
master have been divided, so that capitalist and entrepre- 
neur or manager are different persons associated only 
through contractual relations. 

The mere capitalist is not confined to the technical lend- 
ing of his capital to active entrepreneurs. Many of the 
devices which make the capitalists legally not creditors, 
but owners, of a business enterprise, are economically 
still bases of merely abstract property, as much as is the 
debt secured by mortgage. The issuance of preferred 
stock as a part-substitute for bondS' — a favorite device of 
recent American financiering — is not intended to give this 



.22 American Economic Association [75^ 

class of investors more, but rather less, power to inter- 
fere in the management of the business. The holders of 
cumulative preferred stock have an income often practi- 
cally as definite and secure as bondholders, and likewise 
limited, but they frequently have no vote in the election 
of directors and they have not the power to change the 
management of the business by putting it into the hands 
of a receiver.^ The "holding-company" is another device 
sometimes used to put a large body of stockholders in the 
position of mere receivers of interest without the privi- 
lege of instituting bankruptcy proceedings. This is but 
one form of centralized control, of which the voting 
trust is another. But the use of the proxy, by which 
executive officers provide automatically for their own 
continuance, serves nearly as well.^ Even directors of 
the corporation often have little to do with its affairs.^*' 
If the stockholders are thus often in effect creditors, 
bondholders, on the other hand, have sometimes fur- 
nished initial capital. American railroads have often been 
started with enough actually paid-in "capital" for a mar- 
gin to encourage creditors, and then have done most of 

* Preference shares with cumulative dividends "really take the 
place of bonds, and are to be so considered in theory." Greene, 
Corp. Fin., p. 8. Cf. also Jenks, Trust Problem, p. 84, where he 
says the purpose of preferred stock is to give actual contributors of 
capital some priority in claim on returns, while not leaving them the 
power to put the company into the hands of a receiver. 

" Cf. Davis, Corporations, II, p. 278. 

^^ On this point the statement of Mr. Jacob H. Schiff is noteworthy: 
"The system of directorship in great corporations of the city of New 
York is such that a director has practically no power. He is con- 
sidered in many instances, and I may say in most instances, as a 
negligible quantity by the executive officers of the society. He is 
asked for advice when it suits the executive officers, and if under the 
prevailing system an executive officer wishes to do wrong or wishes 
to conceal anything from his directors or to commit irregularities 
such as have been disclosed here, the director is entirely powerless." 
Testimony before the Armstrong Committee, p. 1299. 



757] The Growth of Large Fortunes 23 

their construction even with money procured by the sale of 
bonds. In recent purchases of industrial plants for com- 
bination, it has been the practice to pay for visible capital 
in bonds. ^^ The speculative element, the capitalization 
of ''hopes", appears, in the modern plan, to be the stuff 
of which common "capital" stock is made. The business 
may later "grow up" to its capitalization, in which case 
the common stock becomes legitimately marketable with 
the investing public. 

There are, moreover, means of making regular and 
calculable the income from common stock. American 
industrial and railway corporations are about as likely 
to increase their "physical valuation" by applying earn- 
ings to improvement and to new construction as by the 
application of the proceeds of additional issues of securi- 
ties. An old-established and conservatively managed 
concern will also accumulate reserves to make possible the 
payment of dividends in lean years. ^^ This is the policy 
pursued by some railroads, notably the Pennsylvania. 
The United States Steel Corporation is now^^ accumu- 
lating a reserve instead of paying dividends on common 
stock. Thus a company's stock is made more acceptable 
to the outside public, which attaches most importance to 
secure and definite income. The investing public has a 
strong appetite for abstract-property. The abstract- 
property character is what makes government bonds so 
much sought. "Gilt-edge" securities in general are those 
which approximate closest to this ideal. 



" Cf . Conant, Atlantic, Feb. 1906, p. 233b. 

" Professor Meade, in his book on Trust Finance, especially chap- 
ter IX, emphasizes the importance of a reserve. He proposes, as a 
sufficient remedy for over-capitalization and speculative management, 
the legal requirement of a large reserve, as high as 50 per cent, for 
manufacturing companies. 

"Written in the spring of 1906. 



24 American Economic Association [758 

All things considered, not much is left, from the 
economist's point of view, of the distinction between the 
stocks and the bonds of corporations. The significant 
fact, from this point of view, is that they are both me- 
diums of abstract-property income. The divisible bonded 
debt is only the extreme case of a type of "paper" ab- 
stract property. The same large-scale production which 
makes the corporate form of organization natural as a 
means of bringing together the needed capital, makes it 
impossible for the stockholder, even if he desires, to 
know much of the actual conditions of the enterprise, as 
an institution for production. The stockholder is rarely 
an administrator of productive wealth. 

Corporate ownership and organization of business is a 
dominant fact in modern, industry. Nothing has been 
more characteristic of the development of industry dur- 
ing the past fifty years than the substitution of the cor- 
poration for individual and partnership management of 
business and the development of the corporations thus 
substituted into great and powerful organizations.^'* 

Limited liability and informal transferability of shares, 
the latter facilitated by sub-division into small values, are 
the legal characteristics of the modern business corpora- 
tion. The former was known to the Roman law, and in 
a crude form in the mediaeval and Continental commenda. 
It was given renewed vigor by the business needs that 
began to be especially felt in the middle of the nineteenth 
century. Informal transferability of shares was brought 
into prominence by Law, and thereafter suffered- an 
eclipse until the nineteenth century. ^^ The "joint-stock" 



" The sentence is from E. R. Johnson, Ry. Transp., p. 69. It 
would be easy to find many other equally emphatic and authoritative 
statements. 

"Van der Borght, Conrad I, 176a, and Juraschek, Conrad I, 228b. 



759] The Growth of Large Fortunes 25 

companies of "merchant adventurers" of the seventeenth 
century in England w^ere forerunners of the modern 
business corporation, without possessing fully developed 
either of its advantages. 

Insurance and banking were conspicuously fields of 
corporate enterprise in England in the eighteenth century. 
Adam Smith's opinion as to where the joint-stock com- 
panies can be successful indicates the state of develop- 
ment in his time. He names banking, insurance, canal, 
and water companies as such, with the proviso that great 
capital be required.^® In the early part of the nineteenth 
century transportation companies were preeminent. An 
act of the legislature was still necessary for the forma- 
tion of a corporation. The formation of a company with 
limited liability without further formality than registra- 
tion was not possible in England until 1855.^"^ How rapid 
has been the recent growth of the business corporation is 
evidenced by the multiplication of the paid-up capital of 
British companies, excluding railroads, five or six times 
in the last twenty-five years. ^^. 



" Wealth of Nations, Bk. V, ch. I, pt. Ill, art. I. 

"" Napier, p. 391. 

^* Following is a statement of the capital of companies registered 
in the United Kingdom under the Companies Act. This does not 
include railway and canal companies and others incorporated by 
special act of Parliament. 

Total amount of paid-up capital of all registered companies having 
a share capital and believed to be doing business at the undermen- 
tioned dates (Statistical Abstr. of the U. K, 41st No., p. 193; 53d 
No., p. 307. The figure for 1877 is from Goschen, 1887, p. 606) : 

April, 1877 Pounds 307,108,446 

475,551,294 

1887 " 

1892 

1897 

1902 

1905 



591,508,692 

989,283,634 

1,285,042,021 

1,805,141,165 

1, 954-337, 1 35 



26 American Economic Association [760 

The business corporation was practically unknown in 
the United States in colonial times. Perhaps half a dozen 

The increase has been regular and uninterrupted. In twenty-five 
years it amounted to nearly 500 per cent. From 1885 to 1902 Giffen's 
estimates allow a liberal increase of 50 per cent, in the wealth of the 
United Kingdom. From 1884 to 1902 the increase in this sort of 
corporate issue was 280 per cent. 

For Germany we have statistics which are not entirely comparable 
with the foregoing, but which are in themselves significant. The 
paid-up capital of Aktiengesellschaften at the dates specified was as 
follows (Van der Borght, I, 194. To obtain the figure for the earliest 
date I have estimated the nominal capital, not paid-up, for insurance 
companies, at 300 million marks, following a suggestion of the 
figures themselves) : 

1886-7 4576 million marks 

1891-2 5771 

1896 6846 

Van der Borght adds that, of the companies whose dates of founda- 
tion are ascertainable, three-fifths were founded within the last 
fifteen years. (Same, p. 195.) 

For France the classified returns from the succession tax evidence 
a great increase of corporate securities along with other forms of 
valeur mobilier. (See footnote, pp. 49-50, below.) But the govern- 
ment bond is what is especially important in France. 

For the United States I know of no means of directly measuring 
the increase of securities, though something may be inferred from 
facts relating to their existing amount and kinds, which are presented 
in the note appended to this chapter. Listings on the New York 
Stock Exchange of issues for new capital (compiled from the Com- 
mercial and Financial Chronicle, vol. 61, p. 1138; vol. 81, p. 1822; vol. 
83, p. 1561) were as follows: 

1886-1890 incl. — Bonds 929,040 thousand dollars. 

Stocks 446,325 " " 

1,375,365 " 

1891-1895— Bonds 857,107 " " 

Stocks 403,939 " " 

1,261,046 

1896-1900 — Bonds 784,268 " " 

Stocks 807,574 

1,591,842 



761] The Grozvth of Large Fortunes 27 

joint stock companies, none of them important, were 
chartered before the Revolution. ^^ Incorporation under 
general laws conferring limited liability was not prac- 
ticed until the middle of the nineteenth century. When 
more than two thirds of the manufacturing interests 
of the country were already in the hands of corpora- 
tions, Mr. North, on the basis of the Census figures for 
1900, speaks of the relative importance of the firm and 
limited partnership as still "rapidly diminishing". ^"^ Cor- 
porations now dominate in industry, and corporate securi- 
ties are the principal mode of investment. 

Through the growth of forms of abstract property, 
the possibility of dissociating the receipt of income from 
the cares of administering productive wealth has become 
practically complete. It is obvious that there is nothing 
in the nature of things to set a limit to the possible aggre- 
gation of such income. The ownership of concrete goods 
is comparatively unsuitable for agglomeration. The cares 
of oversight so increase as to destroy the motive to it, 
and the leakage in the return also increases, no matter 
how good the oversight. The appetite for inactively 
acquired income, on the other hand, is not thus limited. 
It is of course not confined to the rich, as is testified by 

1901-1905 — Bonds 1,608,093 thousand dollars. 

Stocks 1,099,308 " " 

2,707,401 " " 

1906 — Bonds 303,1 12 " " 

Stocks 237,480 



540,592 " 

These statistics of listings, and also amounts of dealings in stocks, 
suggest that the tendency is not less strong towards the increase of 
securities here than elsewhere, though such statistics give no clew to 
the actual quantities existing. 

" Cf. S. Williston, pp. 165-6, and Baldwin, pp. 268-271. 

^ I2th Census, vol. VII, p. Ixvi. 



2 8 American Economic Association [762 

the growth of the modern trust company, if not of the 
savings bank' — for its deposits are largely reserves for 
consumption. The owner of a small property is thus 
relieved of the care and responsibility of choosing his 
investments. The owner of large property is likewise 
relieved of caring for what is already accumulated, so 
that he is able, at will, either to do nothing, or to center 
his attention on further increase of riches. 

§ 3. The Incidents of Income from Property Historically 
Considered. 

In little developed stages of social evolution the posses- 
sion of riches and of ruling power have gone together. 
Nowadays political power and conspicuous income from 
property have become more and more separate. This is 
largely due to greater security and to a more public- 
spirited administration of governmental functions. The 
rich man does not now so much need political power 
in order to retain his riches, and the servants of the state 
do not so much use their power as personal perquisite 
and license for extortion. An alliance between the ruling 
classes and the rich, and mutual give-and-take arrange- 
ments, are still by no means unknown. But the two 
classes are now always separate in thought, because they 
are, on the whole, separate in personnel. Even the tradi- 
tion of needful magnificence or "state" for the high public 
official has suffered much decay. 

In the more settled condition which succeeds that 
where the strong right arm and ready craft unite riches 
and political power, the function of getting leaders and 
rulers tends to lapse, and a hereditary social and political 
hierarchy is established. This stage is also past. The 
lament for feudal and patronal institutions will always 
be echoed in romantic minds. But a roseate view of the 



7^5^ The Growth of Large Fortunes 29 

older condition always supposes and assumes the right 
fall of the die in the matter of birth — a contingency from 
the results of which society may be thankful to be in 
part relieved. Certainly the distribution of political and 
social functions, and of the means and reward for their 
performance, can be better adjusted than by a system of 
hereditary castes, or by feudalism. The disintegration 
of an all-round personal relation of lord and man into a 
series of specific functional adjustments was, in the pro- 
cess of social evolution, bound to come. Nobles and gen- 
tlemen abdicated their political functions, in the first 
instance to an absolute king, but ultimately in favor of the 
people. Economic-administrative functions they have 
also passed on to others as opportunity developed. Noble- 
men that have retained their estates are now hardly dis- 
tinguishable from the merely rich, unless it be by the fact 
that their functional past is farther away.^^ 

Feudalism was an attempt at functional adjustment 
of the relation of social classes, and at fixation of incomes 
accordingly, where political and general-social determi- 
nants of economic conditions were still dominant. In- 
come from land was the only recognized form of income 
of considerable amount not resulting from personal ex- 
ertion. Hence military and political functions, being 
themselves as yet of no settled economic character, went 
with the ownership of land.^^ Or, looked at from another 

"The dependence of riches upon political relations, and upon the 
state when developed, did not suddenly cease. Cf. d'Avenel on the 
fortunes of the ancien regime in France, Revue des Deux Mondes, 
esp. March 15 (1906), circa p. 307. 

^ Feudal landowners "are not the members of agricultural groups ; 
they are professional soldiers or servants of the State, who treat 
their land as a reward and guarantee of service to the king." E. 
Jenks, Law and Politics in the Middle Ages, pp. 216-7. Curious 
instances of the favoring of the political classes as regards income 
are found in the rates of interest fixed by Justinian's Code, and in 



30 American Economic Association [7^4 

point of view, it is perhaps also true, that the land- 
owners, being the only active leisure class, were the only- 
ones able to exercise the honorific offices of war and 
government. Sovereignty and land-ownership were fused, 
and both were regarded as private property. Office and 
receipt of income from land were treated alike as per- 
sonal rights and passed on by inheritance. The con- 
creteness and universality of the relation of lord and 
peasant involved the fusion of economic, political, and 
social elements. ^^ This was essential to the conception 
of it, as being a complete personal, instead of an ab- 
stract and official, relation, economic or other. 

The ideal of feudalism, barring evil results of the acci- 
dent of birth, was good.-^ In a simple social state such a 
system may work well. Though mediaeval relations were 
largely determined by physical force, the arrangement 
was not without plan — to be seen at least in retrospect — 
and did have a place, and even rights, for the less favored 
classes. But the plan was not of an economic nature. 
The comparative brutality of slavery, as revived and 
practiced in American negro slavery, was doubtless largely 
due to its being a purely economic institution, without 



mediaeval instances of rents varying with the social class of the 
payer after the manner of regressive taxation. The exemption of 
nobles and clergy from taxation in France, and elsewhere, before the 
Revolution, had not always been mere abuse of power and privilege. 

^ "The essence of the feudal organization of society was that it 
rested completely on land-tenure, and on one system of land-tenure — 
a system in which ownership was divided between the actual tenant 
of the land and the lord 'of whom he 'held' it, and in which the 
relation as to land was accompanied with a close personal tie between 
the lord and tenant, involving mvttual duties and responsibilities." 
Ashley, Essay on Feudalism, pp. 45-6. 

" Cf. Cunningham : "So long as economic dealings were based on 
a system of personal relationships they all had an implied moral 
character." I, 465. Schmoller defends feudalism as a satisfactory 
functional arrangement for the times. 



7^5] The Growth of Large Fortunes 31 

the political and social aspects of, for example, mediaeval 
serfdom. Under complex modern conditions an analytic 
adjustment of men's relations is much more likely to be 
just.-^ 

In no respect was the classical English economics more 
at fault than in assuming the universal applicability, 
without qualification, of the Ricardian theory of rent. 
Though it is not true that a knowledge of modern 
rent is worthless or worse for an understanding of 
mediaeval conditions, the differential return to land is not 
the clew to the nature of mediaeval rent. Agricultural 
land was the great original res frugifera or source of 
permanent income from property. The rent charge was a 
recognized form of such income when "usury", or interest 
on money or fungibles, was condemned. ^^ Rent was the 
important original form of income from property, and, as 
we have seen, the basis of feudal society. The peasant's 
labor could, in ordinary years, raise more than was nec- 
essary for bare subsistence. Hence part of his time might 
be devoted to cultivating his lord's land. This is the 
crudest form of rent, that is, labor-rent. Or the same 
end of realizing income from property might be obtained 
by letting the peasant cultivate more land and taking 
from him part of the product. More important, perhaps, 
were various dues and fees that custom required the 
peasant to pay to the seigneur at every turn. The burden 
was laid on persons rather than on the land.^^ Laborers 
could produce more than their own maintenance. The ec- 
onomic process stopped about there. The peasants, for 

^ Locke's feudalistic scheme of government for the Carolinas was 
an entire failure, for one reason because it was feudal and unana- 
lytical of relations. Cf. the Fundamental Constitutions of Carolina. 

'" Ashley, Ec. Hist., II, p. 410. 

^ Cf. d'Avenel on the importance of the "domaine direct" as com- 
pared with the "domaine utile," loc cit., March 15, pp. 284 and 280. 



32 American Economic Association [7^6 

various reasons, political rather than economic, could not 
retain this surplus as their own. Whatever the cultivation 
could spare was applied to support feudalism. "Economic 
rent" may have been about equal to this, but its existence 
could not be clearly distinguished till later. The peasant 
could not hide his gains nor carry them away. Markets 
developed slowly and only as feudalism declined. The 
lord, in theory at least, gave the peasant something in 
return for what he took. It seems but just that those 
who could not give their services to the state should pay 
taxes for, and to, those who did. For the rent was, to all 
intents and purposes, a tax.^^ The land tax is the most 
general and persistent form of taxation known to history. 
Its only competitor in point of antiquity is the capita- 
tion tax. It is sometimes difficult to determine whether 
a payment was rent due to the ruler as proprietor, or a 
tax, that is, a contribution to the support of government, 
especially since government was at one time in effect a 
private enterprise. 

The extension of the use of money and of pecuniary 
methods and standards in business has been a phase, and 
also an instrument, of the decline of the all-round per- 
sonal relation of ruling and subject classes.-^ The market 
point of view has been steadily gaining ground since the 
close of the middle ages. This development has met with 
fewest obstacles in America. Money-exchange and credit 

^ "The peasant's share of taxation, paid through the landlord, was 
probably the original element in rent." Cunningham, I, 462. Com- 
pare also the mistake of the English administration in India in mak- 
ing landlords of the Zamindars of Bengal, originally tax-gatherers. 
See Baden-Powell, Land Systems of British India, vol. I, p. 187-8. 

^ "The intervention of money brought with it the possibility of 
close bargaining." Cunningham, I, p. 464. "Mediaeval economy 
with its constant regard to the relations of persons" is contrasted 
with "modern econorny which treats the exchange of things as 
fundamental." P. 464. 



7^71 The Growth of Large Fortunes 33 

practices have increased the relative weight of the com- 
mercial point of view. This of course gives great advan- 
tage to mercantile talents. Though this situation contains 
some undesirable elements, it is an inevitable result of 
complexity of social life and of an analytic treatment of 
social relations. 

In the evolution of the partnership, especially in me- 
diaeval times, under the influence of the condemnation of 
usury, we find good illustration of the dilTerentiation of 
economic relations. The mediaeval craftsman received 
income from all the sources distinguished by modern 
analysis : — his investment in real estate and in tools and 
materials, his own labor, his skill in managing and mar- 
keting. But his income was not thought of as other than 
homogeneous. In the original "company" of relatives 
and messmates, which was based on natural or general 
social ties, with the members sharing the work and its 
results, there was an attempt to reckon a separate return 
to capital. But the function of furnishing capital could 
not long remain merely a subordinate incident of per- 
sonal participation in work. According to the mediaeval 
view, however, the capital could not be lent at a fixed 
rate of interest, or without sharing the risk. This meant 
that, though the inactive capitalist might not share in the 
management of the investment — for it was supposed that 
normally he would — he must share in the uncertainty of 
its results. He must remain owner of the particular con- 
crete productive capital. ^^ Thus the canonists sought 
specifically to prevent that abstract-property relation 
which is the very essence of modern financiering. The 
commenda, which was the form of partnership character- 
istic of mediaeval times, was but a crude device to differ- 
entiate the capitalist, who was often necessarily inactive 

=" Ashley, II, 419. 



34 American Economic Association [768 

by reason of distance, perhaps on account of marine ven- 
tures, from the entrepreneur. The problem of separating 
property right from the administration of productive 
wealth had not then reached its modern dimensions and 
had not forced a more satisfactory solution. 

As other sources of riches, besides land, developed into 
importance with the rise of industrial and trading classes, 
there came the inevitable clash between the newer eco- 
nomic power and the older feudal ruling class. This 
could have but one issue. Economico-technical devel- 
opments have sustained the power of the captains of 
industry and business men. Since the industrial and 
political revolution of a century or so ago, laws and cus- 
toms and opinions have been more and more adjusted to 
a segregation of economic from other relations and to 
giving freer scope to economic factors. The land itself 
has been gradually "mobilized". ^^ Thus of late economic 
or economico-legal causes have possessed the field as the 
unhampered determinants of the growth of large 
fortunes. 

Modern economic organization has more and more 
completely released the rich from functional requirements 
and from the necessity of personal efficiency in order to 
keep what is acquired. This is as true of extra-economic, 
that is, of political and social, as of economic activity. 
Specialization and the growth of the learned professions, 
not less fundamentally than popular government, have 
made it less true that mere superiority of economic po- 
sition is of itself a calling to lead and to rule. While the 
possession of means is still a great advantage, the rich 
are rather at a disadvantage in comparison with the chil- 

'^Or the law relating to land has been "Romanized," as certain 
German opponents of the movement toward the free individualistic 
treatment of landed property contend. 



769] The Growth of Large Fortunes 35 

dren of families of smaller means in preparing for the 
more strenuous professional careers. Hence President 
Eliot's lament that the rich to-day have no calling. ^^ The 
development of abstract-property income out of direct 
income from wealth is one phase of the process of social 
evolution away from feudalism. Economico-legal devel- 
opments have facilitated the ownership of income-pro- 
ducing value quite dissociated from any other and more 
exacting duty than the receipt of income. Both qualita- 
tively and quantitatively the opportunity for the accumu- 
lation of riches has greatly broadened in the last century, 
and especially in the last half-century. 

Capital as well as labor produces. Physical forces and 
things, as well as man, are economic causes. They 
participate in production, and to certain of them, as welJ 
as to the men who contribute their exertions, must be 
imputed a portion of the joint product. But while income 
is to be imputed to the natural and artificial agents and 
materials necessary to production, it is actually paid to 
the owner of them. Men and things produce; but only 
men acquire. ^^ Income from capital is not acquired by 
contemporaneous production. In the case of abstract- 
property income, not the slightest participation in pro- 
duction is required. The receipt of income from capital, 
therefore, does not check itself by the labor incident to 
its receipt. Hence its accumulation and concentration are 
not subject to limitation from within. 

Not only as regards contemporaneous production, but 
even as regards production in the extended sense, in 
which the producer and owner of capital may be said to 
produce the income resulting from such capital, it cannot 

'"'The address on the Present Disadvantages of Rich Men in 
American Contributions to Civilization. 

'^ The producer of capital may, by extension of meaning, be said to 
produce the interest received from it afterwards. 



36 American Economic Association \_77'^ 

be said that the income from most capital goes to its 
original producers. The reason is conclusive. The orig- 
inal producers and accumulators of most capital are 
dead. The inheritor of capital gets just so much of a 
start in the race for riches or for more riches, and thus 
a further cause of economic inequality is added to what- 
ever personal business ability he may possess. Even 
without personal ability, he may thus acquire by inheri- 
tance without production an assured income so large, and 
with its maintenance so well provided for, that further 
growth of riches may be a matter involving no real per- 
sonal sacrifice. 

The amount of concrete wealth that a man can have or 
wish to have is limited by the responsibilities involved in 
utilizing it, a function which can never be wholly dele- 
gated to others. The development of abstract property 
removes this natural limitation on the agglomeration of 
riches and makes degree of accumulation more exclus- 
ively dependent on commercial instincts. The number 
representing a man's property interests can take on a 
few more figures without appreciably increasing the 
amount of care required. A foundation of paper, or 
other, abstract property once started, the increase of the 
amount of riches so composed may proceed smoothly. 
The care of it may be turned over to financial experts. 
Even in this respect, small savers, perhaps from salaries, 
are at some disadvantage, for in order to have safety 
they must take the savings-bank rate. On the subjective 
side, as regards capacity to make sacrifices, they are better 
equipped for the competition than the rich. But they 
have only begun to interest themselves in abstract prop- 
erty. Whatever may be the future, so far it appears that 
the great fortunes have been those chiefly benefited by the 
evolution of abstract property. 



77^1 The Grozvth of Large ForHmes 37 

§ 4. The Constitiient Elements of Large Fortunes. 

Three possible constituent elements of riches are : con- 
sumers' goods, concrete possessions of producers' goods, 
and abstract property in means of production. 

The sum of values contained in goods ready for con- 
sumption and in the hands of the consumer can only be 
matter of conjecture. It is probably greater in propor- 
tion to population than it was fifty or a hundred years 
ago, but on the average not very much greater. An 
urban and industrial population has a greater tendency 
to live from hand to mouth as regards concrete supplies, 
giving over to dealers the function of keeping "stores". 
The custom of providing large stores of linen and bed- 
ding — especially in preparation for marriage, perhaps 
large enough to last the couple for life — declined along 
with the practice of spinning in the household. For the 
rich, no doubt, accumulations of consumption goods are 
absolutely greater, but still, a priori, we should hardly 
expect a marked increase to be characteristic of the pres- 
ent age. Pomp and plenty and love of display are more 
characteristic of the rich of barbarous ages and peoples. 
Doubtless in the finer forms of art there has been an 
increase in values, but rather by a bidding up of prices 
through increased numbers of the rich than by changed 
tendencies in their expenditure. The same may be said 
of the value of dwellings, but this is for present purposes 
hardly to be regarded as of a non-investment character, 
since realty is so decidedly a commercial asset. In terms 
of value, the less cost of goods produced under the fac- 
tory system should bring about a decline in the per capita 
of consumables. 

There is clearly a tendency to an increase in the import- 
ance and relative amount of producers' as compared with 
consumers' goods. This is characteristic of the present 



38 American Economic Association \JT2- 

age of "capitalism", in which the workman tends tj 
become the adjunct of the machine. Capital played but 
an insignificant part in the handicraft economy of the 
middle ages. While the difference cannot be measure'! 
statistically, the present requirement would doubtless be 
expressed as many times a multiple of the mediaeval out- 
lay, rather than as a percentage increase. Even a decade 
now brings a notable increase. 

An estimate for Great Britain and Ireland shows^ an 
increase in the income from capital in 59 years of about 
two hundred per cent., while population increased fifty- 
six per cent.^^ Taking account of the fall in interest 

" The table below is derived from British income-tax statistics by 
following a method of Giffen's. He assigns certain schedules and 
items to one or the other class of incomes and divides others accord- 
ing to a fixed proportion. 

An Attempt to Distinguish "Income from Idle Capital (including 
land) from income which is derived not so much from the cap- 
ital itself as from the labor bestowed in using the capital," and , 
thus to separate the former from other sorts of income reported 
in the gross income-tax schedules of the United Kingdom. 

Ratio From Ratio 

From Per cent. to salaries, Per cent, to Pop. 

Year. Capital, of Total. Pop. etc. of Total. Pop. Total, (in thous.) 

(million pounds) (million pounds) (million pounds) 

1843 188.5 66.9 70.2 93.5 33.1 34.8 282 26,841 

1862 252.5 70.1 86.5 107.5 29.9 36.8 360 29,183 

1881 407 69.7 1 16.6 177 30.3 50.7 584 34,885 

1901-2... 560 64.7 133.9 306 35-3 '7Z-'2 866 41,831 
% last of 

first... 298 ZV 307 156 

The figures for '43, '^2., and '81 are those calculated by Giffen and 
presented in the Jr. Roy. Stat. Soc, 1883, pp. 617-8. The figures for 
1901-2 were obtained from the U. K. Statistical Abstract for 1903 
(pp. 38-9) by following the same method, and assuming that Sched- 
ule B is to be apportioned the same as in 1881. Of course they are only 
rough approximations, but the error should be in the same direction 
in all cases and hence should not affect the comparison appreciably. 
Values are given in nearest millions of pounds. Population is 
added for purposes of comparison. It is estimated by simple arith- 
metical interpolation, for the census, not for the fiscal, year. 



77Z] The Growth of Large Fortunes 39 

rates, the corresponding capital must have increased much 
more. Great Britain, too, was the leader in industrializa- 
tion and much farther advanced than any other country 
at the earlier date. In 1688 the per capita wealth of 
England was 60 pounds. In 1800 that of Great Britain, 
after making allowance for a change in the value of 
money, was equivalent to 113 pounds. Giffen's estimate 
of 1885 gives 270 pounds per capita for the United King- 
dom^ and 415 pounds for England by herself. At this 
date 85 per cent, of the total was income-yielding capital. 
For 1 901 -2 Giffen's estimate assigns to the United King- 
dom a per capita wealth of about 360 pounds.^^ 

It is not impossible that income from labor is increasing at a 
slightly more rapid rate in the United Kingdom than is income from 
capital. But it should be expected, as a result of improving methods 
of administration and other causes, that the gross assessments to 
the income tax are becoming more and more inclusive of the incomes 
of the British people. The growth of the salaried class must tend to 
bring more incomes from labor into both the gross and the taxed 
assessment. It is predominatingly labor incomes that are about the 
margin. Hence it is not proved that income from labor has been 
increasing at a more rapid rate than income from capital. Even if 
it has, the rate of growth of income-yielding property must still be 
considerably more rapid than is the increase of labor income. For 
the rate of interest has been declining decidedly, as is proved by 
prices of British Consols, and yet the amount of interest-income has 
greatly increased, and the proportion of interest to all income 
assessed has barely declined. The amount of capital must have 
increased very greatly. 

^ Giffen estimated the value of the United Kingdom "as a going 
concern" for the year 1885 at 10,000 million pounds. Of this he 
says 8,500 million pounds was income-yielding capital. (Growth of 
Capital, p. 28.) His most recent estimate, for the year 1901-2, puts 
the sum at 15,000 million pounds. If the proportion of income-yield- 
ing wealth remains the same — we should expect it to become slightly 
larger — it is 12,750 million pounds. 

Some earlier estimates are accepted by Giffen as reliable and 
comparable with his own. For 1688 Gregory King's estimate was 
320,000,000 pounds, or 60 pounds per head for England, as compared 
with the 1885 average of 270 pounds per head for the United King- 



40 American Economic Association [774- 

In the United States the per capita wealth has appar- 
ently been multiplied very nearly four times in the last 
half century, from $308 in 1850 to $1318 in 1904.^^ 
Whether the per cent, that is income-yielding has changed 
is a question. It has probably not changed enough to 
affect appreciably the comparative figure for successive 
decades. 

Capital is more important than ever before, both in 
production and in distribution. Since consumers' goods 
are in general more personal and less disposable with 
reference to time and place as regards the benefit they 
may yield, they are, on the whole, less susceptible of con- 
centration than producers' goods. This refers to the 

dom and 415 pounds for England alone. Giffen thinks "the question 
of changes in the purchasing power of money does not affect the 
comparison." (Ibid., pp. 75, 80, 82.) 

Beeke's estimate for 1800 is, Giffen believes, after deducting the 
national debt and the like, "on all fours" with his own estimates 
(PP- 9S> 100). This assigns to Great Britain — the estimate does not 
include Ireland — 1740 million pounds. This is 170 pounds per head. 
Allowing for a rise in prices of 50 per cent, per head (p. 99), the 
per capita amount would be 113 pounds, as compared with King's 60 
pounds per head. To compare the 1800 estimate directly with that 
for 188s, there should be allowance for a fall in prices (p. iii). 

^' For the United States we have no such data for measuring the 
growth of capital as for England. There are only the census statis- 
tics of the amount of real and personal property for the last half 
century. These figures are as follows (nth Census, Wealth, Debt 
and Taxation, Pt. II, p. 14; 1907 Report on same, p. 27; estimate of 
population in 1904 from Census Bui. 71, p. 16) : 

Amount in millions 
Year oi dollars. Per capita. 

1850 7,136 $308 tn. 

i860 16,160 ' 514 

1870 30,068 780 

1880 43.642 870 

1890 65,037 1036 

1900 88,518 II65 

1904 107,104 I3I8 

The earlier figures are probably not so complete as the later. 



775] The Growth of Large Fortunes 41 

physical side. On the economic side the modern mechan- 
ism of investment gives a sure reward for postponement 
of enjoyment. Hence conditions both negative and pos- 
itive favor increased accumulations of producers' goods. 
Within the sphere of capitalistic income, abstract-prop- 
erty income is of increasing relative importance. Ab- 
stract-property income is itself distinctly modern. The 
mediccval mind looked askance at such a thing. Attempts 
to suppress it were in a way successful. By enforcing 
most of the disadvantages of direct administration of 
capital and by adding some others, they caused a risk on 
the part of the mere "money-lender" and an irregularity 
in his income such as practically to destroy its abstract- 
property character. Government debts reached note- 
worthy dimensions a century or two ago,^'^ and have since 
then been a settled form of investment, always increasing 
in amount. ^^ These for long held the field as the domi- 
nant type of sources of abstract-property income.^^ The 
nineteenth century saw an enormous development of 
transportation companies, whose stocks and bonds, where 
such undertakings are not governmentally owned, have 
now become the principal form for such investment. In 
the United States more than one-tenth of the total wealth 
of the country is represented by the single item of steam 
railroads. "Industrials" have only recently acquired some 



^^Contemporaneously with this and before, property in purchas- 
able offices was important. D'Avenel, perhaps exaggerating, esti- 
mates their value in France at the time of their suppression by the 
Revolution at 8 billion francs. 

''For statistics of debts see below, footnote at p. 122. 

*' It is noteworthy that Hamilton assumed in his statement of the 
advantages of a funded public debt— which he claimed facilitated 
business enterprise through making possible the ready provision of 
capital as needed— that there existed no other form of transferable 
security in appreciable amount. See the Report on Public Credit, 
Works, II, p. 52 ff. ; also the Report on Manufactures. 



42. American Economic Association \_77^ 

standing with the "general pubhc" of abstract-property 
seeking investors. But the United States Steel Corpora- 
tion has a capitalization of a billion and a half, and the 
market value of its securities is now "growing up" to- 
wards a billion dollars. The corporate form of indus- 
trial organization was until recently so little a matter of 
course that it was not until 1855 that the most advanced 
of industrial countries provided for incorporation with 
limited liability by registration under general law instead 
of by special Act of Parliament. The states of the United 
States and other countries have done the like. Hence the 
stock-and-bond, that is, the abstract-property, character, 
of the organization of modern commercial and industrial 
enterprise. ^"^ There is also the tendency to get from real 
estate an increasing yield of abstract property by way of 
the mortgage. An ever greater part of property and 
capital is passing over into the form of "paper prop- 
erty".^i 

This great growth of intangible "wealth" has of course 
been reflected in economic theory. Hence the doctrine that 
"capital" is an immaterial sum of value to be conceived 
separate from its concrete embodiment. Among contem- 
porary Americans, Professors Clark and Fetter are the 
leading advocates of the view that makes it simply ab- 
stract quantum of income-yielding value. 

The commonness of the designation "capitalist", its 
comparatively recent origin, its connotation that the one to 

*" Giffen (Growth of Capital, p. 47) found that, in the interval of 
ten years between a former estimate of the wealth of the United 
Kingdom and his estimate of 1885, there was a change in the public 
estimation of forms of investment such that land sold for fewer 
years' purchase and stock exchange securities for more. 

" Schmoller estimates that 100 years ago "perhaps a few" (viel- 
leicht einige), to-day in Germany 17 per cent., in England 40 per 
cent, of all wealth has taken the form of negotiable securities. 
Grundriss, p. 642. 



777'] The Grozvth of Large Fortunes 43 

whom it is applied is not only a possessor of some capital 
but is rich, — all these things suggest a direct connection 
between the growth of capital and the increase of large 
fortunes. Large-scale production is inimical to the small 
owner of concrete capital. The great increase of capital 
in response to modern technological requirements, at least 
in those stages of its development so far reached, has 
meant an increase in the number of the rich. Not only 
the growth of capital, but also the shift in modes of own- 
ership, within the sphere of capital, in the direction of 
abstract property, has been such as to favor large accu- 
mulated acquisitions. This appears actually to have been 
the dominant tendency in developments up to this time, 
though it is not essential to the nature of abstract prop- 
erty. Unlike concrete wealth, which carries with it the 
responsibility of administration, abstract property is sus- 
ceptible either of indefinite and equal subdivision, or of 
any degree of concentration. 

It is difficult, on account of the necessity of being con- 
tent for the most part with statistics in which the only 
distinction is between realty and personalty, to establish 
with absolute convincingness a greater tendency to con- 
centration in the ownership of abstract than of other 
property. City real estate may have substantially the 
nature of abstract property. Ground rents are clearly 
abstract-property income. Under personalty, on the other 
hand, are included not only stocks and bonds, but furni- 
ture and personal effects, which are the most concrete of 
concrete wealth. It is thus strongly significant that, al- 
though very small estates are most likely to consist of 
nothing but personalty, the very large estates have a 
much larger proportion of personalty than the smaller. 
In New York State three-fourths of the value of large 
estates, those of $50,000 or more, is personalty, and one- 



44 American Economic Association \_77^ 

fourth is realty. In the small estates, those under $5,000, 
these proportions are reversed, three-fourths being realty 
and one-fourth personalty. Probably more than four- 
fifths of the personalty of large estates is paper property, 
that is, notes and mortgages, stocks and bonds, and the 
like.^^ The amount held by the average owner of Amer- 

^ Certain statistics of probated estates in New York are especially- 
important, because they show the proportions of personalty and 
realty in large and small estates respectively, and thus indicate in 
which form of property there is the greater tendency to concentra- 
tion. (The 1894 Report of the Bureau of Statistics of Labor of 
Mass. classifies real and personal estates separately by size, but gives 
only average values, not the numbers of estates in the different 
classes !) 

Statistics of Large Estates (i. e., over $50,000) Figures for the 

of decedents in New York City for the two same less the 

years Oct. 1892 to Sept. 1894. (Spahr, Distri- Gould estate, 
bution of Wealth, p. 60.) 

Per cent. Per cent. 

Number 631 630 

Total value $210,052,938 $138,052,938 

Realty 48,056,562 23 46,056,562 33 

Personalty 161,996,376 jy 91,996,376 67 

The Gould estate contained $2,000,000, or 3 per cent., realty, and 
$70,000,000, or 97 per cent., personalty. 

Statistics Exhibiting the Distribution of Property in Estates, 
with division into Personalty and Realty, for October, No- 
vember, and December, 1892, compiled from the records of 36 
counties of New York State. (Spahr, footnote, p. 64.) 

Estates. Number. Per cent. Totals. Per cent. 

$50,000 and over 116 3 $28,215,274 67 

$50,000 to $5,000 768 22, 10,811,845 26 

Under $5,000 2467 74 3,187,300 7 

3351 $42,214,419 

Distribution Dstbn. Per cent, within classes. 

Realty. per cent. Personalty. per cent. Realty. Personalty. 

$9,532,540 59 $18,672,734 72 34 66 

5,640,408 34 5,171,437 20 52 48 

1,165,965 7 2,021,335 8 27 63 

$16,338,813 $25,865,506 



779] The Growth of Large Fortunes 45 

ican railway stock is probably not less than $20,000.'^^ 
The average value of the American farm w^ith its build- 
ings is a trifle less than $3,000. The common belief that 

Spahr (pp. 64-5) believes that these figures cannot be accepted as 
representing the exact truth, and suggests the following modifica- 
tions, for the reasons given: "(i) The small holdings of real estate 
should be increased about one-half, because of the failure to record 
real estate in many of the rural counties. It is chiefly the small 
holdings of realty that fail to be recorded. [An executor must give 
bond in proportion to the personalty.l (2) The small holdings of 
personalty should be reduced about one-half, because the returns 
cover the gross possessions of the decedents. The small estates are 
preeminently the estates of borrowing shop-keepers and farmers. 
Often the payment of their debts leaves no personalty whatever, and 
lessens the amount of realty. Large holdings, on the other hand, 
are returned as low as possible, in order to avoid the inheritance 
tax on personal estates above $10,000. All the surrogates' clerks 
reporting, state that the small estates are somewhat smaller than 
returned, and the large estates somewhat larger. No correction, 
however, need be made in the aggregate holdings of any class. It is 
only the relative proportions of realty and personalty that need to 
be changed." The corrected table, with percentages added, follows : 



Estates. Realty. 

$50,000 and over $2,250,000 

$50,000 to $5,000 3,000,000 

Under $5,000 .. . 1,500,000 



Per cent. 

distribution. Personalty. 


Percent. 


Per cent. 

within 

classes. 

Rlty. Pers. 


23-3 $6,750,000 


73-0 


25 75 


44.5 2,000,000 


21.6 


60 40 


22.2 500,000 


54 


75 25 



$6,750,000 $9,250,000 

This is the table which Spahr holds to be representative of the 
distribution of wealth in the country at large, New York City having 
a higher degree of concentration. Spahr does not appear to relate 
this noticeably greater degree of concentration in personalty to the 
enormous increase in the amount of personalty in the last century. 
To do so is a great step towards explaining concentration. The 
last "corrected" table is all the more significant because Spahr 
makes no use of the greater concentration of personalty resulting, 
so there is no likelihood of bias in the change. The increase in the 
proportion of personalty with the increase in the size of the estate 
is much more uniform after the correction. But it may very well be 
that there is a larger percentage of personalty in very small estates, 
since they must consist mainly of personal effects, furniture, tools, 
and the like, all of which are concrete personalty. 



46 American Economic Association [780 

the ownership of paper property is greatly concentrated 
is well grounded. 

The fact of a tremendous increase in personalty, of 

Even for the larger estates the difference between realty and per- 
sonalty as regards degree of concentration does not express ade- 
quately the tendency of abstract property, for the ownership of 
urban realty is likely to take on abstract property characteristics. 
The value of urban realty also, like the amount of paper property, 
has increased at a disproportionately rapid rate in the last half- 
century. Further tables which suggest certain significant compari- 
sons between city and country as regards what economic classes are 
most likely to acquire the different kinds of property are given else- 
where in this essay. (Footnote at pp. 80-1.) It appears to be difficult 
for small property-holders to acquire realty in a large city like New 
York. 

It would be desirable to separate the figures for the ownership of 
legal claims upon wealth, "paper property," that is, from other per- 
sonalty. But in the larger estates personal effects are of relatively 
little weight, and it is doubtless the abstract personalty that accounts 
for the concentration. 

It is unfortunately not possible, though the data are to be had 
from existing records, to give detailed statistics of the components 
of estates by size. The writer has collected the following facts for 
appraised values of estates recorded in the surrogate's office at 
Ithaca, N. Y. The estates to which they relate are 28 in number, 
and exceed $10,000 in value, three being over $50,000, the largest of 
which is $71,182. In this number are included all estates recorded at 
Ithaca up to the spring of 1906 and since the state law has required 
accurate appraisals of real as well as of personal property, the 
period covered being thus about two years. Following are the 
classified values of these estates : 

Amounts. Per cent. 

Realty $192,696 23.5 

Urban $129,642 15.8 

Rural 63,054 7.7 

Personalty 625,879 76.5 

Personal effects, stocks of goods, 

and implements 24,205 3.0 

Cash and deposits 80,657 9.8 

Bonds, stocks, mortgages, notes, 

and interest on same 509,896 62.3 

Insurance 11,121 1.4 

Totals $8i8,57S loo.o 



78 1] The Growth of Large Fortunes 47 

which there is clear evidence in all the statistics obtainable, 
is to be associated with its high degree of concentration. 
This increase, we know, has been an increase of paper 

^ It is not in the least probable that the proportions of the different 
kinds of property owned by individuals in the county as a whole at 
all correspond to these. The figures suggest that to-day even a well- 
to-do middle propertied class must be based upon abstract property. 
The statistical basis is too small for a general conclusion, but the 
figures presented are of considerable symptomatic value. 

Is it claiming too much to assert that it is the duty of the State 
of New York to compile and classify the excellent material recently 
accumulated in its surrogate court records in a way to show the 
present ownership by economic classes of the different kinds of 
property? Such statistics would be of great value from the point of 
view of financial administration as well as of extraordinary scientific 
interest. 

" Statistics of the number of stockholders of American railways in 
1904 were compiled by the Interstate Commerce Commission. (s8th 
Congress, 3rd session. Senate Documents No. 188, p. i.) The number 
was 327,851. Doubtless there are many owners of stocks of several 
railways counted twice. Some of the holders must be corporations. 
Railway corporations are doubtless included in the number. In the 
case of stock in the hands of trustees, the Commission has included 
the number of beneficiaries, so far as ascertained, instead of the 
number of trustees. At this time the par value of the stocks of the 
railways of the United States was $6,339,899,329. (Rept. on Statistics 
of Rys. for 1904, p. 292.) This gives $19,338 of stock for the average 
stockholder, making no allowance for duplications. The amount of 
stocks not owned by railway corporations was $4,397,040,970. (Sta- 
tistics of Rys., p. 58.) The quotient of this amount divided by 
327,851 is 13,412. The true quotient for individual holdings is 
between 19,338 and the smaller number, doubtless nearer the latter, 
since the holdings of one railroad in the stock of another are usually 
either nil or large. But the true quotient is not the true average. 
Probably most individual owners of railway stock own in more than 
one railway. The stock of American railways as a whole, too, 
appears at this date to have been somewhat above par, since the par 
of railway securities owned by the public was then $9,585,467,711. 
(Stat, of Rys., p. 58), while the commercial value of railways was 
$11,244,852,000. (Census Bui. 21, p. 8.) The average owner probably 
possesses more, rather than less, than $20,000 worth of such stock. 
There is thus little ground for the claim that the ownership of 
American railways is greatly decentralized and an interest of the 
people rather than of the rich. 



48 American Economic Association [782 

property. A century ago, though public debts were al- 
ready of importance, this development had scarcely begun. 
The title to not less than half of the total wealth of the 
United Kingdom has now taken this form.'*'^ The pro- 

The amounts in which United States bonds were held by private 
individuals in 1880 should also be noted. The average for male 
holders is $7742; .for female holders, $3081. But 830 male and 168 
female holders of over $50,000 each owned $176,239,350 and 
$23,344,900, respectively, out of a total for males of $327,185,500, 
and a total for females of $90,353,350. (loth Census, vol. VII, p. 
491.) Bonds issued by the government of his own country are in 
general the favorite form of abstract-property investment for the 
conservative person of small means. 

** The relative amount of personalty and the rate of its increase 
may be exhibited statistically. 

Porter, in 1843, on the basis of probate statistics, estimated the 
value of personal property in Great Britain at 1,200,000,000 pounds 
for 1814, and at 2,000,000,000 for 1841. (Vol. Ill, p. 127.) Of this 
Scotland had somewhat more than one-twentieth. Porter adds (p. 
128) that 760,000,000 pounds is the amount due the national creditors, 
which factitiously [sic!] raises the amount of personal property. 
The great proportion of government bonds in the personalty is 
notable. The proportion was not less — the debt was actually some- 
what greater — in 1815, hence the growth of personalty other than 
government bonds was greater than appears. The value oi' real 
property for England and Wales Porter estimates for 1841 at 
1,563,500,750 pounds (p. 136). So the value of the personalty 
already somewhat exceeded that of the realty. There is probably 
some duplication in these figures, and more likely an overestimation 
of realty, from our point of view, and an underestimation of per- 
sonalty. In 1841 England was far ahead of other nations in indus- 
trial and commercial development. Her large manufacturing capital 
was chiefly concrete personalty and her transportation and many 
other commercial enterprises were already organized as joint-stock 
companies. 

The situation some sixty years later is indicated by the following 
statistics. The capital value upon which estate duty was paid in the 
United Kingdom in 1902-3 was (Com. Inland Rev., p. 80) : 

Personalty 211,148,000 76.2% 

Realty 64,436,000 23.8% 

Total 275,584,000 100. 



783] The Groivth of Large Fortunes 49 

portion of personalty which is abstract property ap- 
proaches three-fourths. Of the productive capital of that 
country considerably more than half must be covered by 
securities and evidences of indebtedness. For France the 
proportion is not so large, being nearly two fifths, but it is 
rapidly increasing."*^ The tendency towards paper prop- 
More than three-fourths of the property owned by residents of the 
United Kingdom is probably personalty. The figures for England 
alone are : 

Personalty 180,022,000 yy% 

Realty 54,192,000 23% 

Total 234,214,000 100 

Changes in the character of the tax prevent carrying back the com- 
parison in this form. Of course much real property owned by 
corporations is mobilized as stocks. But the form of ownership is 
the point in which we are interested. In such a case there is no 
duplication. In the case of mortgages there is more likely to be; 
but the above British probate statistics reckon only net values. There 
is much likelihood of some concealment of securities, and thus of a 
diminution of the apparent proportion of these. 

Of the 182,452,479 pounds of personal estate situated in the United 
Kingdom passing by will or intestacy in 1902-3— that is, not including 
that situated abroad nor inter vivos gifts — about 70 per cent, as 
classified, is paper property. (Com. Inland Rev., p. 92.) This esti- 
mate reckons as paper property: stocks and funds of the United 
Kingdom, and of other countries, shares or debentures of public com- 
panies, mortgages, bonds, bills, notes and other securities, life insur- 
ance policies, ships or shares of ships — in all amounting to 125,600,000 
pounds. Other items that are more than doubtful, especially the 
large amount of "cash at the bankers," are reckoned as concrete 
wealth. So 70 per cent, is a conservative figure. 70-100 of 76 per 
cent, is 53 per cent. From this it appears that more than half of 
the total wealth of the United Kingdom is paper property. 

*"For France, in the official Annuaire statistique de la France for 
1903 (Vol. XXIII, at pp. 66* and 67*) is a table relating to succes- 
sions, from which the following data are extracted. Ratios are 
added : 



50 



American Economic Association 



[784 



erty is world-wide. ^*^ Though the obtainable data are not 

Valeurs Per cent, later of earlier 

raobi'ieres, amount. 

fondsd'Etat, For For 

actions, each whole 

Years. obligations. division. period. 

1851-5 102.9 mil. fr. ... 

1874-6 516.0 501 

1899 2081.6 403 2023 

Biens meubles 

not valeurs mob. Per cent, securities 
Total (i. e., dif. bet. etc., of 

biens precedmg total person- 

meubles. amounts.) alty. 

1851-5 843.6 740.7 12.2 

1874-6 2006.2 1490.2 25.7 

1899 3724-0 1642.4 55.9 

Per cent, later of earlier amt. 
Biens immeubles. Ea. div. Whole per. 

1851-5 I218.O 

1874-6 2289.5 188.8 

1899 3042.4 132.9 249.9 

Per cent, person- Per cent, securities, 
Total sue- alty of etc., of 

cessions. total. total. 

185I-S 2061.5 40.9 5.0 

1874-6 4295.6 46.7 12.0 

1899 6766.4 55.0 30.8 

Thus is traced, with a high degree of certainty as to the propor- 
tions, the shift towards personalty and towards paper property in 
France in the latter half of the nineteenth century. It is especially 
securities and the like that may be concealed to escape taxation, and 
they are therefore presumably underestimated in the above returns. 
And the method of assessment is believed to rate realty too high. 
(Foville, 1893, P- 602.) Thirty per cent, is probably a low figure for 
the proportion of valeurs mobilieres to French wealth. Using Ney- 
marck's figure of 90 billion francs for valeurs mobilieres and assum- 
ing a total of 230 billions for the national wealth, we obtain, as the 
per cent of valeurs mobilieres, 39.1. (Gide, Principes d'economie 
politique, ed. 1905, p. 407, uses this proportion. The figure for total 
wealth is doubtless Foville's increased a little for time elapsed. The 
90 billions is Neymarck's estimate.) The proportion of the produc- 
tive capital of France covered by paper property is of course much 
more than that. 

France is not a land in which the corporate form of business 
organization flourishes as in the United States or Great Britain. 
Great Britain is probably also, as yet, a larger holder of foreign 
securities than France. 

" For Germany it is not easy to test definitely the tendency to a 



785] The Growth of Large Fortunes 51 

entirely to the point, the United States is probably not far 
behind France. '^^ Clearly here is one important clew 

disproportionate increase of personalty or of securities. I will give 
only the following summary statement of Schmoller (p. 642) : 
"Christians has estimated for Germany 30 billion marks in German, 
besides 10 billion in foreign, securities, together 40 billion out of a 
national wealth of 175 or 200 billion marks. But in these 40 billions 
mortgages, savings-bank acknowledgements, and the like, are not 
included." 

Neymarck in 1901 made the following estimates for securities dealt 
in and owned in various European countries (Bui. Inst. Internat. 
Statist., XIII, pt. Ill, p. 170) : 

Total des litres 
appartenant en 

propre aux Na- Total 

tionaux. des litres cotes. 

(In billions of) Francs. Dollars. Fr. Dol. 

Great Britain 120 24 215 43 

France 90 18 135 27 

Germany 45 9 80 16 

Total for above 255 51 430 86 

Russia, Austria-Hungary, Netherlands, 
Italy, Belgium, Spain, Switzerland, 
Denmark, Sweden, Norway, Rou- 
mania, etc., together 87.4 132.7 

Grand total 342.4 S62.7 

The listed values (titres cotes) result in part from duplications of 
securities listed in several countries, in part from extra-European 
securities in which European investors are somewhat interested. 

In 1903 Neymarck expresses his opinion that slight additions 
should be made for the three chief holders above and for the small 
northern countries. (Bui. Inst. Internat. Statist., XIV, pt. Ill, 
p. 383.) 

^^ For the United States there are no satisfactory statistics of the 
increase of personalty and of securities. For an attempt to get the 
proportion of the total wealth in the form of securities and the like, 
the reader is referred to the note at the end of this chapter. Census 
and other estimates of personal and real estate, based on property 
tax returns and the like, are not made from the point of view of 
the character of ownership, that is, they do not deduct from realty 
for mortgage debt or for the securities issued by corporations largely 
on the basis of real property. Hence they do not adequately exhibit 
the tendency towards abstract and paper property. 



52 American Economic Association \_7^^ 

to the explanation of the increase of great fortunes. If 
there is much more personalty in the very large estates, 
the great recent growth of personalty accounts largely 
for the growth of large fortunes. 

NOTE TO CHAPTER II. 

Corporate Securities and Evidences of Indebtedness in the 

United States. 

Certain statistics, though not of the most satisfactory sort for the 
purpose, may be used to determine approximately the proportion of 
paper property to the total wealth of the nation. 

The 1907 Report on Wealth, Debt and Taxation (p. 27) gives the 
folloviring itemized estimate of the national wealth in 1904 : 

Form of Wealth. Amount. 

Real property and improvements taxed $55,510,228,057 

Real property and improvements exempt 6,831,244,570 

Live Stock 4,073,791 ,736 

Farm implements and machinery 844,989,863 

Manufacturing machinery, tools and implements.... 3,297,754,180 

Gold and silver coin and bullion 1,998,603,303 

Railroads and their equipment 11,244,752,000 

Street Railways 2,219,966,000 

Telegraph systems 227,400,000 

Telephone systems 585,840,000 

Pullman and private cars 123,000,000 

Shipping and canals 846,489,804 

Privately owned waterworks 275,000,000 

Privately owned central electric light and power sta- 
tions 562,851,105 

Agricultural products i,899;379;652 

Manufactured products 7,409,291,668 

Imported merchandise 495,543.685 

Mining products 408,066,787 

Clothing and personal adornments 2,500,000,000 

Furniture, carriages and kindred property 5,750,000,000 

Total $107,104,192,410 

Of these items, railroads, street railways, telegraph and telephone 
systems, Pullman and private cars, privately owned water-works, and 
central electric light and power stations may be put down as practi- 
cally all property of corporations belonging to holders of securities. 
Together these amount to $15,238,809,105. 



7^7^ The Growth of Large Fortunes 53 

Shipping and canals are a difficult item to deal with. For want of 
better data we may guess that one-half the amount is either directly- 
owned by individuals or owned by the state, and the other half is 
owned by corporations. Then the item of paper property here is 
$423,000,000. 

The questions left to answer are : How much of the concrete 
personalty, and how much of the real estate is owned by security- 
issuing corporations ? How much of the value of real estate remain- 
ing is covered by mortgages? How much of the remaining amount 
of directly owned wealth has set over against it interest-bearing debt 
evidenced by notes secured by chattel mortgages or by commercial 
paper, etc.? 

It is possible to get from the 1905 Census the comparative weight 
of incorporated companies and other forms of business organization 
for manufactures in the United States. The capital of the manu- 
facturing establishments was then reported at $12,686,265,673. Of 
this 82.8 per cent, pertained to incorporated companies, and the rest 
to forms of business organization classed as individual, firm, and 
miscellaneous. (Bui. 57, p. 14.) Eighty-two and eight-tenths per cent, 
of the above sum is $10,304,227,977. Estimated on this basis and for a 
time of great prosperity, the market value of the securities of manu- 
facturing companies ought to be more than that. In order to make 
the figure available for present purposes it should be reduced to date 
of 1904. The capital of manufacturing establishments in 1900, ex- 
clusive of hand-trades, was $9,424,992,544 (12th Census, vol. VII, p. 
xcvii and p. 50). Excluding hand-trades the percentage of the value 
of products attributable to incorporated companies in 1900 was 64.6 
(data in vol. VII, p. Ixvi). In 1905 this percentage was 7S-7 (Bui. 
57, p. 14). Hence the capital of incorporated manufacturing com- 
panies in 1900 may be estimated as equal to 

828 646 ^ , ^.„ 
X X $9,424,992,544, or about $6,840,000,000. 

One-fifth of the difiference between this and the figure for 1905 
subtracted from the latter gives $9,611,000,000 as the value of the 
securities of manufacturing corporations in 1904. 

The Census Special Report on Mines and Quarries for 1902 gives 
the par value of stock and bonds of dividend- or interest-paying 
mining and quarrying companies, reporting these data, as follows 
(p. 82) : 

Common and preferred stock $1,260,339,137 

Bonds 264,323,081 

Total $1,524,662,218 



54 American Economic Association [788 

The corresponding data for natural gas and petroleum are reported 
separately as follows (p. 87) : 

Common and preferred stock $256,612,860 

Bonds 24,722,829 

Total $281,335,689 

Combined amounts are as follows : 

Common and preferred stock $1,516,951,997 

Bonds 289,045,910 

Total $1,805,997,907 

These statistics apply for only 1142 plus 248 or 1390 companies 
reporting dividends or interest, out of the 4876 incorporated com- 
panies reporting capitalization, of 5386 enumerated (p. 80). The 
1390 reported as follows : 

Dividends $72,416,913 

Interest 13,603,924 

Sum $86,020,837 

Dividends and interest paid by the 1142 mining and quarrying com- 
panies (exclusive of natural gas and petroleum), that reported either 
the one or the other, amounted to 4.5 per cent, on the par value of 
stock and bonds issued (p. 84). Dividends and interest paid by the 
248 natural gas and petroleum companies, reporting that item, 
amounted to a return of 6.1 per cent, on stock and bonds issued 
(p. 87). This includes the Standard Oil Company so far as it is a 
producer of crude oil. From the above it appears that the capitali- 
zation of this portion (the 1390) of the mining and quarrying com- 
panies is not very excessive. The market value of their securities 
should be perhaps a fourth below their par value. The other com- 
panies, those not reporting, are probably not so prosperous. By 
subtracting from the totals the figures for the above dividend- and 
interest-paying companies, we find the importance of these companies 
as capitalized. 

Number of incorporated companies reporting capital 4876 

Number of incorporated companies reporting dividend or int. . . 1390 

Difference 3486 

Common and preferred stock issued. Bonds issued. 

2,902,835,544 314,883,914 

1,516,951,997 289,045,910 ' 

Difference, 1,385,883,547 Difference, 25,838,004 



789] The Growth of Large Fortunes 55 

Aggregate par of stocks and bonds issued: 

Incorporated companies reporting capital $3,217,719,458 

Same reporting dividend or interest 1,805,997,125 

Difference $1,41 1,722,333 

These companies reporting capital but not dividends or interest are 
smaller and have a less secure position in the investment market than 
the others, as is indicated by the small amount of bonds issued. 
Together with the 510 companies reporting no data as to capitaliza- 
tion, these smaller companies may account for securities v^rith a 
market value high enough to bring the total for mines and quarries 
to something above 2,000 million dollars in 1902. 

Concrete "capital" of mining and quarrying establishments v^^as 
not reported in 1902. In 1889 it was reported at $1,287,709,840. 
Value of products was then reported at $410,760,770. Value of pro- 
ducts in 1902 was reported at $796,826,417 (p. 6). If capital increased 
in proportion to value of products, it was about $2,500,000,000 in 
1902. Incorporated companies produced 86.3 per cent, of the value 
of the product in 1902 (p. 66). Two thousand million dollars, or a 
little more ,thus appears to be a conservative approximate valuation 
for securities of mining companies in the United States in 1902. 

To get a figure for 1904 we may assume that the value of issues 
of securities by mining and quarrying companies has grown in the 
two years at the same rate as that at which the entire industry has, 
on the average, increased its output for the period before 1902. The 
value of the securities in 1904 would then be 

796,826,417 ^ , A 

. X $2,000,000,000, or about $2,150,000,000. 

856,221,132 

The capitalized value of mining royalties is thoroughly abstract, 
and in effect paper property. Royalties and rents paid for all 
minerals, so far as reported, amounted to $34,530,713 in 1902 (p. 
III). Their capitalized value in 1904 should be sufficient to bring 
the total of paper property supported by mines and quarries up to 
$2,500,000,000 in 1904. 

There are some very considerable corporations engaged in whole- 
sale and retail trade. I know of no method of estimating the value 
of their property or of their securities. 

The total capital stock of national banks, state, stock savings, private 
banks, and loan and trust companies in 1904 was $1,392,494,972 
(Comptroller, I, p. 426). We know that the shares of many national 



$6 American Economic Association [79^ 

banks are considerably above par, and probably the market value of 
the above total is par or more. 

The stock of stock companies in the business of life, tire, and other 
insurance, and of stock companies doing business as building and 
loan associations, should be included here, but the data are not 
available. 

In 1890 the mortgage indebtedness amounted to 16.67 per cent. 
of the value of all taxed real estate (nth Census Rpt. on Real 
Estate Mortgages, p. 116). And the percentage was relatively high 
in regions of denser population and in the better white farming 
sections, and low in the South — conditions which suggest an increase 
since that date. Sixteen and sixty-seven one hundredths per cent, 
of the value of taxed realty in 1904 is $9,253,555,017. Owing to 
the methods of compilation adopted, the error, as with the debt 
on farms and other homes, which accounts for $36,655,753,841 of the 
above total (1907 Report on Wealth, pp. 16-17), is probably in the 
direction of understatement. It is doubtful if the United States is so 
much better off in this respect than European countries. (Cf. p. 86 
below). Borrowing as a means of increasing business capital we 
should expect to be more frequent. Americans, on the other hand, 
may be less inclined to accept a fixed charge for indebtedness as 
permanent, and they may be more able to work out of debt than 
the people of other countries. But the percentage of indebtedness 
has doubtless increased in the fourteen years following 1890. Sta- 
tistics show an increase between 1890 and 1900 in the proportion of 
homes encumbered. (Cf. p. 86 below.) In the above total there is 
doubtless some duplication with our other figures of paper property. 
But the understatement probably much more than outweighs this. 
After allowing for possible duplication the indications of all the 
available data point to $10,000,000,000 as a minimum amount for the 
item of real estate mortgages in the total of paper property. 

Debt evidenced by commercial paper is not always so fully abstract 
propertj'^ as some other forms, because of the large amount of care 
involved, at least in managing small loans. But it is all paper 
property. The debt of large corporations, whether supported by 
real estate or personalty, is nearly all represented by securities, 
though sometimes promissory notes are used. The debts of active 
business men administering their own productive wealth are very 
largely represented by loans of commercial banks. The loans of 
national banks on Sept. 6, 1904, amounted to $3,757,929,371 (Rpt. 
Comptroller for 1904, p. 186). State banks exhibited loans other than 
on real estate amounting to $1,596,211,527 (same, p. 406). 

Of the total value of promissory notes held by individuals, includ- 
ing those secured by chattel mortgages, against property in personal 



790 The Grozvth of Large Fortunes 57 

effects, such as clothing and furniture, in the stock and implements 
of agriculture, in the stocks, tools and materials of the hand trades 
and of non-corporate commercial and manufacturing enterprise, we 
know nothing. 

The interest-bearing public debt of the United States in 1904 was 
$895,157,440 (Statistical Abstract for 1904, p. 26). 

In 1902 the public indebtedness of states and territories, counties, 
cities, villages, townships, precincts, etc., and school districts was 
$1,864,978,483 ; and the corresponding figure for 1890 was $1,137,200,090 
(1907 Rpt. on Wealth, Debt, etc., p. 131). On this basis we may- 
estimate the amount for 1904 as $1,986,274,882. 

Adding the above items of paper property, we get a total of 
$47,400,000,000. This is approximately 45 per cent, of the total 
wealth of the nation in 1904. The percentage of paper property 
thus obtained is only a rough approximation to the truth, but it 
should be an underestimate. Perhaps the Census Bureau is rather 
generous in its estimates of the commercial value of transportation 
and other pubHc service corporations. The approximate character 
of the estimates for certain items, on the other hand, with the error 
probably on the side of underestimation, has been indicated, par- 
ticularly in the case of real estate mortgages. There is also probably 
more omission than duplication. The method itself of enumeration 
of parts to be included is of a character to lead to an underestimate. 

With reference to determining the proportions of the different 
kinds of property owned by citizens of the United States, some 
allowance should be made for the ownership of American securities 
abroad. But making allowance on the other side for foreign securi- 
ties owned in this country, the amount owned abroad must be much 
less than formerly. It must now be considerably less than the "not 
much over $2,000,000,000" estimated for the beginning of the century. 
(See Bacon, Yale Rev., IX, p. 277.) 

As regards the tendency towards paper property, there can be no 
doubt. The newness of some of the items in the above review, the 
comparative youth of practically all of them, the character of the 
lines where the most striking recent developments of the commerce 
and industry of the country have occurred, all these facts point 
unmistakably to the conclusion that paper property in the United 
States has been gaining very rapidly of late, quite as rapidly as in 
any other country. 

Despite the fact that our chief exports are still the products of the 
farm, and thus are produced under the individual entrepreneur sys- 
tem, chiefly by cultivators who are owners of the soil, and despite 
the fact that our people are not, on the whole, avidious of abstract, 
or paper, property, the United States, though it may still be consid- 



$8 American Economic Association [79^ 

erably behind Great Britain as regards the proportion of its wealth 
covered by paper, has probably no less a proportion than France, 
whose people are distinctly partial to paper property. The per cent, 
of abstract property is of course greater than that of paper property. 
The per cent, of either to the productive wealth of the country is 
greater than to the total national wealth. 



CHAPTER III. 

RECENT ECONOMIC CONDITIONS AND TENDENCIES IN 
PRODUCTION AND EXCHANGE AS RELATED TO THE 
GROWTH OF LARGE FORTUNES. 

§ I. General View of Large-scale Production and of 
Incremental Income. 

In the light of the superior fitness of producers' goods 
in general as material for riches, and of the comparative 
suitableness of particular forms for concentration into 
large fortunes, we may now consider concrete conditions 
in the various fields of the growth of capital-values.^ 
The development of abstract property has been shown to 
be a pre-condition to the evolution of great fortunes such 
as we know them. Now in two general ways shall we 
find recent economic history effective directly and posi- 
tively to create such agglomeration of private property. 

Some sorts of concrete wealth are of such a nature that 
if they are to be directly of benefit to their owner, which 
involves their being administered by him, the owner must 
be rich. Of such a nature are most of the instruments of 
machine production. Modern machines are usually so 
powerful or so delicately adjusted, and their accessories 
are so numerous or so expensive, that a well-equipped 
manufacturing plant embodies a fortune. The fact of a 

^The four modern progressive nations— France, England, Ger- 
many and the United States, each representative in its way— furnish 
the appropriate material for studying present economic tendencies 
in production, exchange, and distribution. Hence little attempt is 
made to use statistics of countries other than these. 

793] 59 



6o American Economic Association [794 

tendency to large-scale production in manufactures is 
familiar. As a result of this tendency manufacturing 
enterprises must be not only larger but relatively fewer 
in number. Individual entrepeneurs must therefore be 
richer than under conditions of small-scale or handicraft 
production. There is another way to secure centraliza- 
tion and unified control, that is, through corporate owner- 
ship, but then the proprietor's interest becomes abstract 
property. Either directly, or through its relation to 
abstract property, large-scale production favors large 
fortunes. 

The value of a good may increase and the increase may 
accrue to its owner without effort on his part and without 
any change occurring in the good. A plot of land may 
receive increased value simply through growth of popu- 
lation and of demand. Unforseen circumstances may 
likewise increase the value of a merchant's stock on hand 
and double his profits. Gain accruing in this way is not 
so good a type of income from property as the fruits 
yielded by the tree or the crops produced by the soil. It 
can be more clearly seen to be income from property, 
solely, however, since the grain must be sowed and the 
harvest garnered by human labor. Labor and land are 
thus joint claimants and competitors in the assignment of 
shares in the proceeds of the harvest. In the case of an 
increase in value due to changes in conditions with the 
progress of time, however, there is no difficulty about the 
line of division between the reward of labor and the con- 
tribution of capital, for there is no such line to be drawn. 
All is mere value-increase, not at all purposed or pro- 
duced by man. There are no concrete fruits. Income 
from wealth may therefore be divided into value-incre- 
mental and goods-fruitional income. We may call the 
former incremental income. 



795] The Growth of Large Fortunes 6i 

The important typical case of incremental income is 
the case of the value-increase of land, which exemplifies 
the principle that value, in contrast with utility, is due to 
"nature's power over man".^ Such value-increase is not 
due to better conditions of living, though it may be a 
symptom of that, owing to implied ability to pay. At any 
rate, it is not service to society that enables some to profit 
by such increase of demand. The same may be said of 
speculative gains in any line. They are all incremental 
income. The fact that there may as well be value-decrease 
as value-increase, or that prices fluctuate, does not mean 
that we are to measure the speculator's opportunity for 
incremental gains by a final difference in value, allowing 
intermediate fluctuations to cancel out. The limit of 
possible gain for the speculator is rather the total of 
upward price movements, since his aim is to sell only at 
the highest points and to buy at the low. 

Incremental income is obviously in essentials abstract- 
property income. If it were only typical income, it might 
be typical abstract-property income. But it is in its 
nature irregular and little predictable or reliable. It 
requires no administrative care, but it is not regularly 



^The relation of value to utility is a difficult subject, and not least 
so in the case of value-increase or incremental income. Utility 
appears to remain the same in the case of such an increase of value. 
This proposition, however, cannot be accepted without qualification. 
The reason for the accretion of value may be the discovery of new 
uses for the good. Or, by increase of population, there may be new 
users and new utilities created with them — assuming that, since the 
intensity of utility for each user will be about the same, abstract 
utility is in proportion to the number of users. The assumption 
involved would doubtless be acceptable to most, though to the 
writer it seems that utility, as abstract capacity to satisfy wants, 
should be independent of the number of consumers. The utility of 
a supply of a particular good is a different thing from the abstract 
utility of the good as such. 



62 American Economic Association [79^ 

recurrent. It is therefore receipts rather than income; 
rather to be considered an addition to one's principal 
than available for application to current and recurrent 
needs. It has not therefore less but more relation to the 
acquisition of riches. The difference between acquisition 
and production is nowhere more important than in rela- 
tion to spontaneous increase of value. 

"^^The business man, of whom we hear so much nowa- 
days, is the man who studies and knows markets. The 
profitableness of his enterprises is always more or less 
due to the keenness of his sense for incremental income. 
To multiply his profits it • is only necessary that more 
goods, all goods, be brought to market and valued in 
terms of the market, or in money, and not valued so once 
only, but valued and re-valued in a succession of ex- 
changes. But this is just what has been happening in 
the last two or three generations. The development of 
the technique of transportation has extended all markets 
and magnified many times the scale of market transac- 
tions. Formerly isolated and outlying communities and 
countries, from Ceylon to the edge of the one-time 
"great American desert", have been drawn into the swirl 
of exchange and suffer or prosper according to the level 
of prices determined in world markets. The cultivator 
of the soil has steadily become more and more specialized 
and less and less self-sufficient, more and more dependent 
on a price for his products of whose determining condi- 
tions he knows next to nothing. The local dealer is 
sometimes no better informed. The dealer in the great 
commercial centers is the one who knows best how to 
profit by conditions. He is perhaps also able sometimes 
to manipulate the market to his advantage. The oppor- 
tunity of the business man in any line to profit by value- 
increase is multiplied by the increase in the breadth and 



797] The Growth of Large Fortunes 63 

in the number of exchanges. Recent economic evolution 
has thus greatly added to his power and importance. 

With the further development of money and credit 
institutions, conditions become more and more favorable 
to the shrewd possessor of a knowledge of prices and 
price-tendencies. 2 Prices are affected by the extent of 
business confidence and the elasticity of credit as well as 
by demand for and supply of goods and by quantity of 
money. The business man, but especially the banker, is 
most often able to profit by such changes. 

Commercial shrewdness, whether it be that of the 
exceptionally knowing speculator or of the business man 
who has mastered a particular line of production and 
sale, is rare and gathers great incremental gains. And 
every business man speculates on occasion, probably the 
more successfully if he is not a speculator by instinct and 
habit, or not completely such. Even very slight changes 
in price, under modern conditions of a world-wide market 
and an unprecedented scale of individual transactions, 
may mean enormous gain or loss. The commercial func- 
tion of the entrepreneur has inevitably become more and 
more important, not only for his own gain but also for 
the adaptation of production to the needs of society. 
Hence the dominance of the business man. All along- 
the line the man with foresight and self-restraint, who 
keeps his own counsel, and is shrewd enough to get the 
better side of a bargain, is the man that counts. Money- 
value or price is his specialty. Material adjustments he 
leaves to the engineer, and administrative organization he 

'"Commodities, those economic goods which are the real objects 
of human desire, apparently occupy a secondary place in the business 
world, for in the conscious purposes and desires of men money is 
the primary thing. For this and other reasons . . . 'price' and 
'profit' are the two most important words in the lexicon of political 
economy." J. F. Johnson, Money and Currency, p. 10. 



64 American Economic Association [79^ 

is more and more likely to leave to the hired manager. 
The two points above reviewed, large-scale production 
and incremental income, are in a measure themselves 
bound together as different aspects of the same develop- 
ment. Adam Smith says that division of labor is limited 
by the extent of the market. Division of labor is an 
aspect of co-operation of laborers and such co-operation 
both is facilitated by and itself favors large-scale pro- 
duction. But the size of the establishment, and thus the 
profitable degree of specialization within it, are limited 
by the extent of the market. Production on a large scale 
is possible only where the market is made large either 
by density of population or by cheap transportation. The 
extension of large markets, however, and the inclusive- 
ness of the application of the market measure of things, 
that is, money, involve a greater importance of mere price 
and of the man who deals in and knows prices. Thus 
large-scale production and the increasing importance of 
markets, of money, of credit, and of the business man, 
and hence of incremental gains, go together. 

These two thoughts are the chief clews to the argu- 
ment of the present chapter. Here they have been men- 
tioned briefly and in the abstract. In the concrete their 
influence, with that of the associated development of 
abstract property, is felt in a multiplicity of forms and 
combinations. We shall attempt to trace these influences, 
with a view to their effects upon acquisition and distribu- 
tion, in their operation in relation to changes in landed 
property, rural and urban; in the rapidly developed ex- 
ploitation at home and abroad of natural resources, min- 
eral and other ; in the perfecting of material instruments 
and of business organization for large-scale manufacture 
and transportation; in commerce, especially in the com- 
merce of "money" and securities ; incidentally, in the 



799] The Growth of Large Fortunes 65 

reaction of §-overnmental policies upon economic condi- 
tions ; and, pervading all these, in a powerfully dynamic 
character of the present age of economic transition. 
Finally we must gauge the facts relating to the acquisi- 
tion and distribution of property in the light of changes 
and conditions as regards the rate of interest, and in 
view of the presence in 'this economic ferment of the 
germs of future modification in the distribution of ab- 
stract property, and hence of property as a whole. 

§ 2. Landed Property. 

The economic basis of feudal inequality and the oldest 
material of large fortunes, was income-yielding agricul- 
tural land. The concentration of the ownership of land 
in England and in eastern Germany is a survival from 
the feudal organization of society, just as the small size 
of landed properties in France is largely a result of the 
crash of feudalism in the Revolution. The United States 
has always been a land of the middle-class proprietor- 
cultivator. The English landed aristocracy or the Prus- 
sian Junkertum have no counterpart here. Attempts to 
transplant the "English gentleman", with his landed es- 
tate cultivated by tenants, never were successful, owing 
doubtless to the unbounded supply of free land. The 
planter aristocracy of the South was not typical, and, as 
an economic institution, has never recovered from the 
abolition of slavery. Experiments with large-scale wheat- 
growing in the prairie regions — heralded as the beginning 
of large-scale production in agriculture — have not satis- 
fied expectations. 

The question as to whether middling holdings, or 
middling entrepreneur incomes, are more than maintain- 
ing their position in agriculture is in various ways highly 
significant. For the general question the experience of 



66 American Economic Association [800 

the United States is less decisive than that of European 
countries, because this is a new country with a history 
of unexampled agricultural expansion. But it is fast 
becoming no longer new. Except for being without the 
surviving results of a feudal past, it is approximating to 
European conditions. Under such circumstances a slight 
tendency to a less proportion of independent middling 
farmers in the United States may be, not a symptom of 
causes at work producing the decline of this class, but 
merely the readjustment following a period extraordi- 
narily favorable to it. 

In 1899 Mr. G. K. Holmes said:^" "It has been es- 
tablished by a thorough statistical analysis that, in the 
more recent years, the increase in number of farms has 
more largely accrued to farms of medium size than to 
farms of the smaller and larger sizes." And, "The mid- 
dle-class farmer, according to the tendency disclosed by 
the Census of 1890, is coming more to the front among 
agriculturists." The Census of 1900 indicates a re- 
versal of the previous tendency. Except in the Southern 
States, and of course for the United States as a whole, 
there was, in the last decade of the nineteenth century, 
an increase in the proportion of farms of 500 acres and 
over. The proportion of farms under 50 acres increased 
in all sections. The proportion of farms 100 or more but 
not so much as 500 acres in extent decreased in all sec- 
tions. Farms of 50 to 100 acres increased in proportion 
in the South Atlantic, South Central, and Western Divis- 
ions, and decreased in proportion in the North Atlantic 
and North Central Divisions, and also in the United 
States as a whole.'* To determine just what in detail is 



"* Year Book of the Department of Agriculture, p. 323. 

* Number of Farms of Specified Area in Acrps, with increased 
or decreased proportion indicated by plus or minus sign (absolute 
numbers from the 12th Census, vol. V, p. xlv). 



8oi] The Growth of Large Fortunes 67 

the meaning of these statistics is for our purposes un- 
necessary. The tendency exhibited is not gratifying. 
Neither need it be occasion for pessimistic feeling as 
regards the future of the American agriculturist. 

The tendency to an increased proportion of tenants is 
too marked to be lightly passed over, but it may be merely 
another sign of the end of agricultural expansion. It is 
most marked in the South. The percentages for the 

Under 50 50 to 100 100 to 500 500 acres 
loQO All sizes. acres. acres. acres. and over. 

United States 4,564,641 1,318,521 1,121,4852,008,694 115,941 

Same, per cent, dis- 
tribution 100 28.9 24.6 44.0 2.5 

North Atlantic 658,569 204,675 195,364 254,510 4,020 

Same, per cent, dis- 
tribution 100 31.9 29.7 38.6 0.6 

Western 145,878 28,117 14,800 87,672 15,289 

Per cent, distribution 100 19.3 lo.i 60.1 10.5 

North Central 1,923,822 385,764 526,935 983,218 27,905 

Per cent 100 20.0 27.4 51. i 1.5 

South Atlantic 749,630 291,979 151,889 275,966 29,796 

Per cent 100 39.0 20.2 36.8 4.0. 

South Central 1,086,772 407,986 232,497 407,328 38,961 

Per cent 100 37.5 21.4 37.5 3.6 

1900. 

United States, Conti- 
nental S,72i7,2,72' 1,931,366 1,366,038 2,290,282 149,686 

Percent 100 -{- 23-7 — 23.8 — 39.9 -|- 2.6 

North Atlantic 677,506 221,318 191,730 259,362 5,096 

Per cent 100 + 32.6 — 28.3 — z^.^, -f 0.3 

Western 242,908 71,662 28,370 116,587 26,289 

Per cent 100 + 29.5 -f 1 1.7 — 48.0 -j- 10.8 

North Central 2,196,567 488,850 562,891 1,091,511 53,315 

Per cent 100 -f 22.^ — 25.6 — 49.7 -|- 2.4 

South Atlantic 962,225 412,788 216,522 309,831 23,084 

Per cent 100 + 42.g -j- 22.5 — 32.2 — 2.4 

South Central 1,658,166 736,748 366,525 512,991 41,902 

Percent 100 +44-5 +22.1 — 30.9 — 2.5 



68 American Economic Association [802 

United States, according to the status of the cultivator, 
were :^' 

Cash Share 

Owners. Tenants. Tenants. 

Year 1900 64.7 13. i 22.2 

" 1890 71.6 lo.o 18.4 

" 1880 74.5 8.0 17.S 

Outside the Southern States, 75 to 80 per cent, of owners 
letting farms reside in the same county with the rented 
farm.^ There thus appears no tendency to absenteeism. 
Neither is there any tendency in this country to the 
growth of a landed gentry. Rented farms are largely 
such by reason of lapse to a mortgagee, and the difficulty 
of finding a purchaser. Others are rented by owners 
who have gone into some other business and are awaiting 
a purchaser. Others are the summer homes of city- 
dwellers. 

England and Prussia are the countries in which the 
tradition of a landed aristocracy retains its greatest vigor, 
hence statistics relating to tendencies in large rural estates 
for these countries are especially significant. The statis- 
tics show that in both these countries there is a decided 
tendency towards middling holdings of agricultural land 
at the expense both of very small holdings and of large 
estates.^ It does not necessarily follow that, because large 

*' 1 2th Census, vol. V, p. Ixxvii. 

■^ I2th Census, vol. V, p. Ixxxvii. 

" The German census yields the following data relating to the size 
of Landwirtschaftsbetriebe in 1882 and 1895. (Table, giving also 
absolute numbers, in Conrad I, p. 133.) 

Per Cent. Distribution of Agricultural Surface by 
Size of Holding. 

German Empire. Prussia. 

Size in Hectares. 1882. i8qs. 1882. 1895. 

Under 2 573 5-56 4-94 4-91 

2 to 5 10.01 lo.ii 7.71 7.84 

5 to 20 28.74 29.90 22.91 24.30 

20 to 100 31-09 30.35 32.76 32.01 

100 and more 24.43 24.08 31.68 30.94 



8o3] The Growth of Large Fortunes 6g 

estates are being divided for purposes of cultivation, their 
ownership is also being divided, but the two tendencies 
are associated in Prussia and probably elsewhere. Even 
if the tendency is merely toward middling tenant hold- 
ings, that means a tendency toward middling entrepre- 

Farms from 2 to 20 hectares in extent, that is, from about 5 to 50 
acres, possessed 38.75 per cent, of the cultivated area of the German 
Empire in 1882, and 40.01 per cent, of the same in 1895, while the 
smaller and the larger holdings show losses. The middling holding in 
Germany would of course be smaller than in America, because of the 
higher value of land. In the seven eastern provinces of Prussia, the 
region of large proprietors, there was an absolute as well as a rela- 
tive loss for large-scale agricultural production. 

German manufacturing statistics are classified in the same manner, 
and of course exhibit the opposite tendency, that is, towards 
Grossbetrieb. 

For Prussia there are also statistics relating to the tendency as 
regards size of properties in land. (Conrad IV, p. 852.) 

Per Cent. Distribution of Property in Land. 

No. of Properties. Cultivable area. 
1878. 1893. 1878. 1893. 

Grossgrundbesitz 2.1 2.0 38 38 

Mittlerer Besitz 11. 7 lo.g 29 29 

Kleinbesitz 17.3 19.4 19 21 

Unselbstandiger Besitz. 69. 68. 13 12 

These classes (large, middling, small, etc.) are based upon net 

produce as calculated for purposes of taxation. 

British agricultural statistics for 1895 give data for holdings 

below 5 acres, but those for 1885 do not, hence the comparison must 

be for holdings above 5 acres in extent. (Returns of Agricultural 

Holdings in Great Britain, pp. 6-7.) 

Agricultural Holdings Classified by Size. 
1885. 1895. 

Size in acres. Number. Per cent. Number. Per cent. 

5-20 148,806 37.52 149,818 37,26 

20-50 84,149 21.22 85,663 21.30 

50-100 64,715 16.32 66,625 16.57 

100-300 79,573 20.06 81,245 20.20 

300-500 13,875 3.50 13,568 3.37 

500-1000 4,826 I.2I 4,616 1. 15 

Over 1000. . . 663 0.17 603 0.15 

396,607 100. 402,138 100. 



JO American Economic Association [804 

neur incomes. According to the situation as regards 
the ownership of personalty, one is incHned to suspect 
that the rich, despite the tradition of a landed aristocracy, 
are drawing out of the ownership of agricultural realty, 
finding abstract property more convenient. Agriculture 
is the great field of the small entrepreneur and will so 
remain. 

The doubtful point is, how far the cultivator will be 
full owner. How far is he to become a mere tenant with 

Acreage of Agricultural Holdings. 
1885. 1895. 

Acres Per Acres Per 

(thous.) cent. (thous. ) cent. 

5-20 1,657 5-15 1,668 5.18 

20-50 2,825 8.78 2,865 8.89 

50-100 4,747 14.76 4,885 15.16 

100-300 13,658 42.47 13,876 43-o8 

300-500 5,241 16.30 5,114 15-88 

500-1000 3,147 9.79 3,001 9.32 

Over 1000... 883 2.7s 802 2.49 



32,157 100. 32,211 100. 

Farms from 5 to 300 acres in extent showed a gain in acreage in the 
lo-year period, while large holdings declined relatively and absolutely, 
both in number and in acreage. It is significant that the 5 to 20 acre 
class showed a decline in relative numbers, but a gain in relative 
acreage, which means a higher average holding within this class, that 
is, a tendency towards the middling holding. Although there was a 
gain in the total acreage for Great Britain, and a greater gain in the 
number of farms, there was a decline both in number and in acreage 
for all classes of holdings over 300 acres. 

The 1895 statistics distinguish and classify by size holdings rented 
and owned, respectively, by their occupiers. But later returns, for 
comparison to detect the tendency, are not yet available. 

Readjustments required by the decline of the value of agricultural 
land in Europe, resulting from the importation of breadstuffs, should 
cause a substitution of larger in place of middling holdings for field 
culture. The growth of cities, on the other hand, should increase 
the number of small holdings for garden culture. Hence it would 
not be surprising if the tendency as regards the size of holdings were 
the reverse of what it is and against intermediate holdings. 



8o5] The Growth of Large Fortunes 7^ 

only a small working capital of his own ? How far will 
he be the owner of a marginal investment in land mort- 
o-ao-ed as much as it will bear? The extent of farm 
mortgage indebtedness appears to have increased between 
1890 and 1900 in the United States/ It is hardly to be 
expected that the American farmer will flourish at quite 
such a rate now that the frontier is a thing of the past. 
The tendency to a rapid gain in tenancy shown for the 
decade from 1890 to 1900 is not gratifying. 

The expansion of the white race by actual migration 
into great new agricultural regions, and by trade rela- 
tions with less industrial peoples, has meant an enormous 
growth of the importation of breadstuffs into Europe and 
a depreciation of agricultural land-values there. At the 
other end of the balance, however, has been the pioneer 
on new land maintained by the European market. At this 
end, above all, is prominent the American farmer.^ The 
shift in land- values, down in Europe, up in the American 
prairie, has doubtless meant, on the whole, a tendency to 
a democratization of the ownership of agricultural land. 
This is true, even apart from the known tendency to a 
splitting up of large estates in Europe. 

Urban and rural realty values exhibit sharply con- 
trasted tendencies. The rapidly increasing density of the. 
population of the occidental world, and the growth of 
cities at a rate which in many places, even in the United 
States, means rural depopulation, has brought with it 

' Cf. percentages in the footnote below at p. 86. Statistics of the 
tendency as regards the amount of indebtedness are not obtainable. 

^But the demand for necessaries is inelastic. The extension of 
cultivation has increased much faster than population. New agri- 
cultural land has probably not gained as much in value as the old has 
lost. Between the years 1878-81 and 1884, and again between 1884 
and 1887, though the total quantity produced increased, the total 
value of the world's supply of grain fell off. (Juraschek, Ueber- 
sichten der Weltwirtschaft, p. 172.) 



72 American Economic Association [806 

an enormous growth of urban land values. Recent city- 
growth in the United States is not so exceptional as we 
are likely to think. It is not merely due to the growth 
of industries in a new country. The growth of American 
cities can be matched by the growth of those of Germany.^ 
While it is not possible entirely to separate the value 
of buildings and improvements from that of the mere 
land, there is good ground for suspecting that, on the 
whole, buildings and improvements form no less a portion 
of the total value of the real estate employed in American 
agriculture than of urban real estate. Someone has 
recently argued that the rental of agricultural land in 
England, since the decline in agricultural values of the 
last thirty years, is no longer more than enough to pay 
a very low rate of interest on what has been expended in, 
and is now represented by, permanent improvements. 
Certainly many a fertile farm in New York State can be 

* This comparison is effectively made by Shaw, Municipal Govt. 
in Continental Europe, pp. 292-6. 

The population of England and Wales, as subdivided into Urban 
and Rural Districts, was as follows (Census, 1901, Summary Tables, 
p. 44) : 

In 1891. Percent. In igor. Percent. 

Total 29,002,525 32,527,843 

Urban 21,745,286 75 25,058,355 77 

Rural 7,257,239 25 7,469,488 23 

The proportion of city population is increasing even in a country 
where the tendency to urbanization has long been pronounced. The 
"point of saturation" is still moving up. 
Weber (Growth of Cities, p. i) makes the following comparison: 

U. S. 7 Cols, of Aus- 

in 1790. tralia, 1891. 

Population 3,929,214 3,809,895 

Pop. in cities 10,000 or more 123,551 1,263,283 
Proportion living in cities.. 3-i4% 33-20% 

The difference is the difference between a century ago and now. 
The per cent, of the population of the U. S. in places of 8000 or more 
was 29.2 in 1890 and 33.1 in 1900. 



8o7] The Growth of Large Fortunes 73 

bought for less than would be the cost of reproduction of 
its buildings, even where these have been recently con- 
structed. If this condition is due to the decline of agri- 
cultural land-values, something like it must be generally 
true for central Europe and for the eastern part of the 
United States. There has been, on the other hand, a 
pronounced tendency to a rapid rise in land values in the 
cities, with which the value of buildings can hardly have 
kept up. Aside from these dynamic factors, the due pro- 
portion of the value of improvements to the value of land 
would seem to be smaller when the value of the land is 
larger.^" Hence it is fair to assume that the results of a 
comparison of tendencies in the values of urban and rural 
real estate hold also, for present purposes, for mere land 
values. 

In fifty years the value of Berlin realty multiplied 
itself 150 times.^" Figures for New York City are less 
startling, but comparable in character, the multiple being 
12 for forty years. ^^ The reason for the smallness of 
the multiple is doubtless the fact that the growth of the 
realty value of the city as an economic entity has been 
so largely the growth of realty values in some half-dozen 
counties around Manhattan Island. The value of agri- 
cultural land and accessories in i860 in Great Britain 
was scarcely less than that of "houses" with accessory 



^^ "As population increases the value of land increases more rap- 
idly than the value of improvements." N. Y. City Tax Com. Rpt. of 
June, 1907, p. 8. 

"The total value of land and buildings in Berlin increased from 
1842 to 1892 from 395 to 5967 million marks. It is now, according to 
Blenck's calculation, as high as the land-value of the four provinces 
of E. and W. Prussia, Pomerania, and Posen. (Schmoller, p. 641.) 

"The Census of 1850 (Compendium, p. 189) puts the value of 
N. Y. City realty at $227,015,855. The Census of 1890 (Valuation 
and Taxation, p. 40) states the value of N. Y. City real estate at 
$2,627,153,845. The figure for Greater New York for 1904 is 
$6,141,004,093 (Wealth, Debt and Taxation, 1907, p. in). 



74 American Economic Association [808 

land. Forty years later the value of "houses" was over 
4 times as great as that of "land".^^ But the rapid 
growth of an urban and industrial population in the 
United States has been in every way more remarkable 
since i860 than in England. 

Speculation in real estate has naturally been one of the 
most prolific sources of large fortunes everywhere, and 
not least in the United States. ^^ The "unearned incre- 

"The tendency to a rapid growth of city real estate values was 
felt in London at the very beginning of the nineteenth century. 
From returns of the rental of the city of London it appears that in 
the thirty years from 1771 to 1801 the annual value of houses in- 
creased 10.85 per cent., while in the first thirty years of the nine- 
teenth century the increase was 56.27 per cent. (Porter, IH, p. 139.) 
Compare the annual values of "houses" and "lands" for Great 
Britain at various dates in the income-tax schedules : 

Land Houses 

(in mil. pounds) (mil. pounds) 

i860 49 53 

1884-5 55 125 

1901-2 43 180 

1903-4 43 197 

Income from land used for building purposes is included with 
"houses". (The figure for i860 is from Schmoller, p. 641, which I 
have not been able to trace to its source. The other figures are from 
the U. K. Statistical Abstract.) Giflfen (p. iii) gives the following 
table showing the relative importance of "land" as a form of wealth 
through two centuries : 

Land. Houses. 

Amt. Per cent. Per cent, 

(mil. pds.) of total Amount of total 
England. 

1690 (Greg. King) 180 60 45 15 

1800 (Beeke) 600 40 180 15 

United Kingdom. 

1812 (Colquhoun) 1200 44 400 15 

1865 1864 30 1031 17 

1875 2007 24 1420 17 

1885 1691 17 1927 19 

There has been a relative decline in the value of agricultural realty 
from 60 per cent, to less than 20 per cent, of the total wealth. 
" See note at end of this chapter. 



809] The Growth of Large Fortunes 75 

ment" is that of city real estate. In farm values there 
has been an "unearned" decrease extending even into 
the Middle West. The growth of cities has, through real 
estate speculation and incremental income, made many of 
our millionaires. 

As regards ownership of city real estate, with refer- 
ence to degree of concentration, it is significant that in 
the United States mere "homes", that is, on the whole, 
city homes, are two-thirds of them rented, while "farm- 
homes" are two-thirds owned. In New York City in 
1900 hired homes were 87.9 per cent.^* It is less likely 
that an owner of property in the city will have put his 
first accumulations into a home than it is that the country- 
man will have done so with his. Opportunity for indus- 
trial employment may change its place and cause an 
uprooting of the city-dweller, while the farm-home pro- 
vides the owner with his occupation. But this probably 
affects comparatively little the above degree of difference. 
The tendency to renting homes favors the growth of 
abstract property, which, again, is favorable to concentra- 
tion. The long-term lease of city ground for building 
purposes, for ninety-nine years, for example — agricul- 
tural land is not rented so — clearly exhibits the abstract- 
property spirit and tendency of city land. 

" The Census percentages (Vol. II, p. cxcii) are : 

Owned Hired 

1900 — Farm homes 64.4 35-6 

Other homes 36.3 63.7 

1890 — Farm homes 65.9 34.1 

Other homes 36.9 63.1 

For Manhattan and Bronx Boroughs the proportion of hired homes 
is 94.1 per cent. (p. ccvi). In Berlin in 1900, of 22,717 inhabited lots, 
only 1776 were inhabited in part or wholly by owners; that is, 94 
per cent, of city lots contained structures exclusively for renting 
with owners living elsewhere. (1900 Grundstiick u. Wohnungsauf- 
nahme, p. 11.) 



7^ American Economic Association [8io 

The growth of cities is significant for this study, not 
only for its effects, but also because of its symptomatic 
character. It signifies, in the first place, a shift in human 
occupations away from agriculture and into manufactures 
and commerce. This is partly due to a further local as 
well as personal segregation of the crafts from agricul- 
ture in order to mechanize them. It is probably more due 
to a greater development of the refining processes through 
which raw materials are passed. The weight of these 
occupations is not thrown into the scale of economic 
democracy. 

But city growth is related to tendencies not only in 
production, but also in distribution and consumption. 
The differentiation of the abstract-property owner from 
the administrator of productive wealth permits geograph- 
ical segregation of the former. This means that he will 
seek certain favored places of abode, chiefly cities, espe- 
cially capital cities. ^^ New York City, or its neighbor- 
hood, and Washington, ^^ are thus favored in the United 
States. But many Americans find Paris, or some other 
European resort, more congenial. The recent growth 
of the "villa" population of the Riviera is significant of 
corresponding tendencies in Europe. In the cities, too, 
of course the rich have their own quarters or suburbs. 

^^ Compare the following remarkable passages in Hume, remem- 
bering that his "stock-holders" are government bond-holders, the 
then representatives of the abstract-property ovi^ning class : "Na- 
tional debts cause a mighty confluence of people and riches to the 
capital" (p. 364). "These [stockholders] are men . . . who can 
enjoy their revenue in any part of the globe in which they chuse to 
reside, who will naturally bury themselves in the capital or in great 
cities, and who will sink into the lethargy of a stupid and pampered 
luxury, without spirit, ambition, or enjoyment" (p. 367). 

" The proportion of the millionaires in Washington who are 
women, and thus presumably not active in the administration of 
productive wealth, is noticeably large. See list in World Almanac. 



8ii] The Growth of Large Fortunes 77 

The political and social effects of such absenteeism are 
of much importance. But we are here concerned with it 
only as a symptom of the growth of riches. 

The presence of the rich in the cities helps to drive up 
land values. The provision of public utilities and the 
support of institutions for amusement and education add 
to the attractiveness of city life and intensify the ten- 
dency to concentration of population. It is chiefly ability 
to pay on the part of the rich that makes the best of these 
things possible. The growth of the great city, moreover, 
adds to the material for riches by creating needs of 
transportation and of other forms of public service which 
are the basis of enormous capitalization of street and 
steam railway enterprises and the like. 

The contemporaneous growth of large fortunes and 
of large cities in the United States is not a mere co- 
incidence. The growth of a city proletariat is recipro- 
cally cause and consequence of industrial and commercial 
organization on a large scale. Thus a cause of inequality 
is working within cities. Both for business and for pleas- 
ure, on the other hand, the cities offer special attractions 
to the rich outside, as well as producing probably more 
than their share from their own population. The number 
of very rich men who have been attracted to New York 
from outside is symptomatic of a general tendency. The 
growth of cities means thus a growth of large fortunes, 
of which it is both cause and consequence.^''' 

" Evidence of the difiference between city and country as regards 
wealth and its distribution follows : 

Cities, owing largely to greater real estate values, have more per 
capita wealth than rural districts. (Cf. Map No. i in nth Census 
Rpt. on Valuation and Taxation. Densely populated, along with 
new and nearly unoccupied regions — this last doubtless being due to 
the speculative factor — show the highest per capita value of real 
estate. The great agricultural regions show moderate or low per 
capita values. Cf. the data for New York below). This is a reason 



78 



American Economic Association 



[812 



The much greater growth in the value of city real 
estate as compared with that of rural, that is, mainly 
agricultural, land, gives the latter much less weight in 

why we should expect absolutely larger fortunes. But it does not 
account for comparative degrees of concentration of property in city 
and country. 

A comparison of the probate statistics of Suffolk County, including 
the capital and chief city of the state, with those for the rest of 
Massachusetts shows the greater number and weight of the rich in 
the former. (The data are from the 1894 Report of the Massachu- 
setts Bureau of Statistics of Labor.) 

Massachusetts Probate Statistics. 



Population 
(i2th Census, 
vol. I, p. 24). 

1829-31. 

Suffolk Co 62,163 

Rest of State 548,245 

1859-61. 

Suffolk Co 192,700 

Rest of State 1,038,366 

1879-81. 

Suffolk Co 387,927 

Rest of State 1,395,158 

1889-91. 

Suffolk Co 484,780 

Rest of State 1,754,163 



Size of 
median 
estate. 



1829-31. 

Suffolk Co $1029 



Rest of State. 

1859-61. 

Suffolk Co. . . 
Rest of State . 
1879-81. 
Suffolk Co. . . 
Rest of State. 

1889-91. 

Suffolk Co. . . 
Rest of State. 



925 

2178 
1748 

2806 
2136 

2664 
2323 



Number Ratio of 
of same to popu 
lation (large, 
ests. in 3 yrs. 
per ICO, 000). 



estates 
above 

$100,000. 



6 9.6 

5 .9 

40 20.8 

46 4-4 

93 24.0 

116 8.3 

113 23.3 

131 7-5 

50 No. estates Ratio of 

times the above same to 

median. 50 x median, population. 

$51,450 14 22.5 

46,250 22 4.2 



108,900 
87,400 

140,300 
106,800 

133,200 
116,150 



2,7 
58 

69 
112 

89 
115 



19.2 
5.6 

17.8 
8.0 

18.4 
6.6 



8 1 3] The Growth of Large Fortunes 79 

the total of wealth. The growth of fortunes based on 
urban realty has thus much more than outweighed the 
increased number of proprietor-cultivators, together with 

The first part of the table is given for rough comparison without 
regard to the requirements of correct method. But in the second 
part, though the form of tabulation is analogous, a thoroughly rela- 
tive test for concentration is used. The method of calculation 
assumes a geometrical distribution of cases between class limits and 
is simply a reversal of the processes indicated in footnote 5 of chap- 
ter II. The differences exhibited as regards concentration of prop- 
erty are striking enough to overbear any sort of objection. 

A similar comparison of Baltimore with the rest of Maryland 
shows the same sort of difference. The data are from the 3rd and 
4th Annual Rept. of the state's Bureau of Industrial Statistics. 
Population is estimated by simple arithmetical interpolation. 

Maryland Probate Statistics. 

Number Ratio of 

of same to popu 

estates lation (large 

above ests. in 3 yrs. 

Population $100,000. per 100,000). 

Baltimore City. . . 316,073 64 (6 yrs.) lo.i 

1875-1880 incl.. (Dec, 1877) 
Rest of Maryland 575,903 10 (5 yrs.) i.o 

1875-79 incl (June, 1877) 

Baltimore City. . . 471,698 89 (6 yrs.) 9.4 

1888-93 incl.... (Dec, 1890) 
Rest of Maryland 622,178 16 (5 yrs.) 1.5 

1890-94 incl (June, 1892) 

Size of 50 times No. of es- Ratio of 

median the tates above same to pop- 

estate median 50 x median, ulation. 

Baltimore City, 1875-80 $I947 $97,350 66 10.4 

Rest of Maryland, 1875-79. • • 903 45,i50 39 4.1 

Baltimore City, 1888-93 1541 77,050 126 13.4 

Rest of Maryland, 1890-94. . . 725 36,250 50 4.9 

It should be noted that the above are not comparisons of accu- 
rately defined and separated urban and rural populations, but merely 
of more thoroughly urban with a partly rural or less urban popula- 
tion. There is no basis for an inference as to the degree of differ- 
ence between city and country in respect of concentration, unless it 
be that the difference is much greater than appears. 



8o American Economic Association [814 

the tendency, now reversed in the United States, to a 
relative gain for middHng holdings in agriculture. But 

A qualification is necessary as regards these probate figures. If 
small properties are in effect less than reported, by reason of indebt- 
edness, the situation is not so favorable for the country as appears. 
But this affects only the degree of apparent difference. There is, on 
the other hand, a large amount of evasion of city taxes on the part 
of the rich by acquiring a legal residence where taxes are low. 
There is also the undervaluation of personalty in large estates. 

Statistics permitting an analogous comparison for the state of 
New York follow. Not only the distribution of estates by size, but 
the proportions of personalty and realty in the different classes of 
estates, is given, since it is highly significant for our study of causes. 
The period covered by the statistics is the three months ending with, 
and inclusive of, December, 1892, selected because during them there 
was no great estate admitted to probate in New York City. Page 
references are to Spahr, Present Distribution of Wealth, under 
whose direction the statistics were compiled. 

Distribution of Property in Estates. 
New York City (p. 56). 

Aggregate 
Estates. No. Per cent. value. Per cent. 

$50,000 and over 53 5 $12,437,511 75 

$50,000 to $5,000 212 22 3,538,313 21 

Under $5,000 704 73 590,172 4 

Totals 969 $16,565,996 

Per cent, division 
within tiie classes. 
Realty. Per cent. Personalty. Per cent. Realty. Personalty. 

$4,471,900 72 $7,965,611 77 36 64 

1,660,833 27 1,867,480 18 47 53 

40,967 I 549,205 5 7 93 



$6,173,700 $10,382,896 

Kings Comity (Brooklyn), 

considered fairly representative of the large cities 

of the country (p. 62, footnote). 

Aggregate 
Estates. No. Per cent. value. 

$50,000 and over 27 5 $6,973,100 

$50,000 to $5,000 147 29 2,099,330 

Under $5,000 336 66 512,030 

Totals 510 $9,584,460 



Per cent. 

73 
22 

5 



8i5] 



The Growth of Large Fortunes 



there is more to be said of the prospects of the propertied 
middle class in agriculture. Aside from the symptom of 
increase of tenancy in the United States, there is a differ- 

Per cent, within classes. 
Realty. Per cent. Personalty. Per cent. Realty. Personalty. 

$2,872,100 71 $4,101,000 74 41 59 

1,029,250 26 1,070,080 19 49 51 

135,330 3 376,700 7 26 74 

$5,036,680 $5,547,780 

The State Outside New York and Brooklyn (p. 64). 

Aggregate 
Estates. No. Per cent. value. Per cent. 

$50,000 and over s^ 2 $8,794,663 55 

$50,000 to $50,000 409 22 5,184,196 22 

Under $5,000 1427 76 2,085,098 13 

Totals 1872 $16,063,957 

Per cent, within classes. 
Realty. Per cent. Personalty. Per cent. Realty. Personalty. 

$2,188,540 36 $6,061,123 67 25 75 

2,950,325 48 2,233,871 22 57 43 
989,668 16 1,095,430 II 47 53 

$6,128,533 $9,935,424 

Madison, Herkimer, Wyoming, Chenango and Schoharie Counties, 
which are typically agricultural (p. 63). 

Aggregate 
Estates. No. Per cent. value. Per cent. 

$50,000 and over 3 2 $251,000 19 

$50,000 to $5,000 60 28 623,163 19 

Under $5,000 149 70 465,258 35 

212 $1,339,421 

Per cent, within c'asses. 
Realty. Per cent. Personalty. Per cent. Realty. Personalty. 

$56,000 9 $195,000 28 22 78 

334,475 53 288,688 41 54 46 

243,525 40 221,733 31 52 48 

$634,000 $705,421 

A relative test for these figures may perhaps be omitted, for 
present purposes, since it would affect only the degree of difference 
between city and country, not its direction. Indeed, its use in this 



82 American Economic Association [8i6 

ence between ownership and ownership. It is important 
to know what has been the tendency as regards the mort- 
gaging of farms. We should, a priori, expect an in- 



comparison, on the basis of such statistics as the above, is exposed 
to the objection that much of the income and property of city resi- 
dents is derived from concrete capital to be found in the country, as, 
for example, in the case of mortgages on country real estate, or in 
the case of securities of railway corporations whose trackage is in 
the country. The local concentration of large holdings of personalty, 
doubtless mostly paper property, in cities is very much in evidence. 
It is noticeable, on the other hand, how little the small property- 
holders are able to acquire realty in such a large city as New York. 
New York's transfer tax is an inheritance tax whose burden 
falls on the well-to-do and the rich. After making allowance for 
differences in per capita wealth, there is no reason why receipts from 
it should vary significantly in different parts of the state except for 
the unequal local distribution of the rich. The data compiled in the 
following table were obtained from the Reports of the Comptroller of 
the state, for the five fiscal years 1902 to 1906 inclusive. Per capita 
value of real property and improvements in 1900 (exclusive of rail- 
roads, street railways, telegraph and telephone systems, privately 
owned water-works, and privately owned electric light and power 
stations), as calculated from data in the 1907 Report on Wealth, 
Debt, and Taxation, p. 69, are added as an indication of the allowance 
to be made for differences in per capita wealth. The per capita 
values of the tax receipts and of realty are calculated for groups of 
counties as follows : 

Kings, New York, Queens, Richmond, grouped as Greater New 
York, 100 per cent, urban ; Albany, Broome, Chemung, Erie, 
Fulton, Monroe, Niagara, Oneida, Onondaga, Renssalaer, Sche- 
nectady, Westchester, grouped together as having 50 per cent, or 
more, but not 100 per cent, of their population in incorporated 
places of 8000 or more inhabitants in 1900 ; Cattaraugus, Cayuga, 
Chautauqua, Clinton, Columbia, Cortland, Dutchess, Genesee, 
Herkimer, Jefferson, Montgomery, Ontario, Orange, Oswego, 
St. Lawrence, Saratoga, Steuben, Tompkins, Ulster, Warren, 
grouped together as having some, but not 50 per cent., of their 
population urban, as defined above ; Allegheny, Chenango, Dela- 
ware, Essex, Franklin, Greene, Hamilton, Lewis, Livingston, 
Madison, Nassau, Orleans, Otsego, Putnam, Rockland, Scho- 
harie, Schuyler, Seneca, Suffolk, Sullivan, Tioga, Washington, 
Wayne, Wyoming, Yates, grouped together as having no urban 
population. 



8 1 7] The Growth of Large Fortunes 83 

crease, for not only have institutions of credit and the 
practice of undertaking every kind of business with bor- 
rowed capital grown up from nothing since the mid- 

Gross Receipts from the Transfer Tax in New York as Dis- 
tributed BY Counties Grouped According to Urbanism. 

Per capita 

val. of Transfer tax Receipts 

real prop. recei ts for per capita 

Population and imprvmnts. five years in the 

Groups. in 1900. in 1900. 1902-1906. five years. 

Greater New York (4 

counties) 3,437,202 $1,507 $16,148,598 $4.70 

12 counties half or 

more urban 1,712,467 827 4,676,803 2.73 

20 counties less than 

half urban i,239,4S8 651 1,992,674 1.61 

25 counties without 

urban population .. 879,767 633 1,678,994 1.91 

Totals 7,268,894 $1,097 $24,497,060 %2-2,7 

The artificiality of the grouping in the above table reduces the 
apparent difference between city and country. Of the receipts from 
the second group Westchester county affords $2,001,957, or not far 
from one-half. The third group is most nearly homogeneous, with 
Dutchess, Orange, and Saratoga counties having the largest receipts. 
In the fourth class, Nassau accounts for $544,454, and Suffolk for 
$248,065, of the receipts, while no other county in the group affords 
as much as $100,000. The counties outside the metropolis with most 
riches are such by overflow from the great city, not by native growth. 

Census figures showing much greater proportion of renting of 
homes in city than in country have been referred to in another con- 
nection (p. 75). 

Prussian income-tax data are arranged in such a way as to bring 
out the fact of local concentration of large incomes in the cities. In 
Prussia in 1903 incomes of 100,000 marks or more formed 0.09 per 
cent, of cases of taxation in cities, and 0.03 per cent, in the rest of the 
kingdom. The percentages of income-tax payers to population is 
larger in the cities. The contributions from this class of incomes 
were 15.50 per cent, for the cities and 11.66 per cent, for the rest of 
the state. (Centennial Vols, of the Prussian Bureau of Statistics, 
Pt. II, p. 127.) 

The tendency to the disproportionate presence in cities of the 
possessors of the largest incomes is rather an indication than a 
measure of their detachment from the places where the incomes are 



84 American Economic Association [8i8 

die ages, but there has been a tendency to a change from 
the personal to the impersonal in credit as in other rela- 
tions. Real estate is the most acceptable basis for long- 
term borrowing. The same tendencies which favor the 
growth of abstract-property income in other fields are 



produced. It is of course possible that they may choose to reside 
elsewhere than in cities. They are likely to have both city and 
country homes, and, in America at any rate, would be likely to 
maintain legal residences in the latter. In Prussia there are working 
against city residence the traditions of feudalism and Junkertum. 

The more thoroughgoing the detachment from nature, the higher 
the minimum money income must of necessity be, and this doubtless 
affects the size of smaller incomes in cities and their proportion of the 
total. In the diagrams of the Prussian Statistical Atlas (Centennial 
Vols., Pt. Ill, Tables 98 and 99), the fact of generally higher money 
incomes from labor in cities is evident, though the very large in- 
comes, that is, mainly from property, are even more prominent. 
In Berlin, the large proportion of incomes between 900 and 1200 
marks, that is, lying just within the scope of the income tax, is 
especially noticeable. 

The suggestion of local concentration of abstract property is sup- 
ported by such figures as are obtainable relating to the place of 
ownership of securities. Any evidence of such concentration not in 
the locality of the concrete wealth corresponding to it, or evidence 
of dispersion away from that point, is itself testimony to the 
abstractness of the property. 

The distribution, as it was in 1880, of one large block of abstract 
property among the different states of the United States, and as 
between city and coimtry, is known. As compiled by the Census of 
1880, of $417,538,850 of registered U. S. bonds held by private indi- 
viduals, the following amounts were held in the states specified (loth 
Census, Vol. VII, Valuation, Taxation, and Public Indebtedness, p. 
494). Percentages of this total owned in certain states, their popu- 
lation, and percentages of their population to that of the U. S. are 
added for purposes of comparison. 

State. Amt. of bonds. 

Massachusetts $45,138,750 

New York 210,264,250 

Distrist of Columbia... 12,419,050 

Of $321,749,050 in bonds held by private individuals in 117 cities the 
following was the distribution among certain cities (p. 495-7) : 



Per cent. 


Population 1880, 


Per cent. 


10.8 


1,783,085 


3-5 


50.4 


5,082,871 


lO.I 


30 


177,624 


0.4 



819] The Growth of Large Fortunes 85 

also affecting- the income from agricultural land.^^ Per- 
haps an important reason why the forces at work to 
produce concentration of ownership in other lines are in 
general not operative in agriculture is because the land 
mortgage serves the purposes of the rich better than the 
ownership of large estates. ^^^ On the side of the mort- 
gagor, too, familiarity with credit forms should be ex- 
Boston $19,958,950 

New York City 176,724,550 

Philadelphia 26,457,450 

Baltimore 6,130,200 

Washington 12,084,650 

Chicago 5,953,600 

San Francisco 10,312,450 

Many of the holdings on which payments were made in New York 
were doubtless owned abroad, but this does not appreciably affect the 
importance of the evidence for local detachment and urban concen- 
tration of abstract property. 

Stocks and bonds of corporations are believed to be owned chiefly 
in the big cities of the East. The following quotation is illustrative 
of the business man's opinion : "Wall street cuts no such figure in 
the eye of the Middle West as it does to the communities on the 
Atlantic seaboard. The crash in prices and the violent fluctuation 
of stocks attract slight attention. For one thing the West has so few 
stocks that it is not directly interested. It could sell all it owns of 
Eastern shares and create little excitement in Wall Street." {N. Y. 
Evening Post, Mar. 10, 1906.) 

That the larger incomes are more to be found in cities, and that 
the cities also contain a larger proportion of large fortunes, may be 
considered proved. 

^' Improvements in the method of mortgaging, by registers, etc., 
in connection with the removal of former feudalistic hindrances, 
have brought it about that "in Western Europe from 1700 to 1900 
the indebtedness of landed property very generally increased from a 
small per cent, (wenige) up to half the value and over." Schmoller, 

" "I have been unable to find . . . that capitalists are seeking 
investments in farms, except in so far as they lend money to farmers 
on farm mortgage securities. The lenders do not want the farms." 
Mr. Geo. K. Holmes in a letter printed in Emerick, Pol. Sci. Quar., 
IX, pp. 619-20. The statement would probably be agreed to by all 
in a position to know. 



86 American Economic Association [820 

pected to increase the tendency to purchase on a small 
margin by a class that, under former social and economic 
conditions, would have become tenants. And the spirit 
of enterprise which is characteristic of the American 
farmer might be expected to promote the borrowing of 
money for improvements. High farm values should 
mean more difficulty in paying off the mortgages already 
incurred, and increase their proportion to the value of 
farms. Rising values should, of course, have the oppo- 
site effect, but might be outweighed by introducing the 
influence of high and speculative values, where farms 
change hands frequently. Such general factors have 
probably been at work in the United States in a way to 
increase the amount of farm mortgages for the country 
as a whole since the attempt of the Census Office to ascer- 
tain their amount in 1890. According to the enumera- 
tion of 1900, though we have no data for amounts of 
mortgages, there has been an increase in the proportion 
of farms mortgaged. ^^ 

^ The percentage distribution is : 

Ownership of Homes Known. 
Free. Encumbered. 

1900 — Farm homes 68.9 31. i 

Other homes 68.0 32.0 

1890 — Farm homes 71.8 28.2 

Other homes 72.3 27.7 

From I2th Census, vol. II, p. cxcii. It is natural to assume that the 
same conditions which cause an increase in the extent of mortgage 
indebtedness will increase its proportion to the total value of such 
property. Prussia apparently affords the most recent and accurate 
information on the subject of the real estate mortgage. Schmoller 
(p. 647) summarizes the situation as follows: "In 1893 the finance 
minister estimated the sum of Prussian mortgages (Hypoteken und 
Pfandbriefe) in city and country at 16.5 billion marks. Eberstadt 
gives the increase of hypothecary indebtedness in Prussia from 
1886 to 1897 for the cities as 8.5 and for the country as 2.4 billions. 
For all Germany the same author calculates the mortgage indebted- 
ness in city and country at 42 billion marks. If the total value of 



82 1] The Growth of Large Fortunes 87 

If thus, through the growth of the abstract-property 
interest in land, the agricultural entrepreneur tends to 
become less a man of means, the position is, other things 
being equal, more accessible. Perhaps it is the abstract- 
property arrangement which will prevent the growth of 
permanent tenancy in the United States.^^ Tradition 
and social prestige do not in the United States, as they 
do in England, weigh in the scale against economic rea- 
sons and favor large estates and tenancy. Great country 
estates of the rich in America are chiefly pleasure parks. 
But the prospect of mortgaged farms has its disad- 
vantages. Such a situation is not favorable to land 
amelioration. The farmer's margin, in such a case, is 
too much like the speculator's margin. But the mortgage 
prospect is the worst situation at all likely, and not what 
is especially to be expected. Conditions are more favor- 
able to the continuance of a propertied middle class of 
owners of agricultural land than for a corresponding 
wealth-administering urban middle class. 

History has worked great changes in "landed inter- 
est". Rural landlords, who once controlled the state, 
have not only lost their dominant position in political 
affairs, but are losing ground absolutely and literally. 
The richest peers and greatest landed proprietors of 
England owe their primacy to the fact that they own so 
much of the ground of London. Our great landlord 
family, the Astors, have made a specialty of investment 
in city real estate. Common speech in the United States 

wealth in Germany is about 200, and that of land and buildings about 
100, billion marks, the result is that, of the realty, the owner disposes 
of 58 per cent., and the creditor 42 per cent. The situation is similar 
in many lands." Percentages of indebtedness to land value for the 
districts of Prussia in detail, but not for the total, are given in the 
Centennial Volumes of the Prussian Statistical Bureau, II, pp. I30-I35- 
"Emerick's conclusion, p. 620, is the same, with this implied as 
one reason. 



88 American Economic Association [822 

has even ceased to recognize the distinctive calhng of the 
possessor of large rural estates worked by tenant culti- 
vators. The word "landlord" brings to our minds images 
either of the owner of city tenements or of the hotel- 
keeper. And the "landlady" is a boarding- and lodging- 
house keeper ! 

The freeholder and cultivator of land has always been 
the mainstay of American democracy. We need not 
greatly fear the extinction of this class, nor even its 
decline, as regards absolute numbers. But the owner of 
city land has been gaining greatly in importance, here as 
elsewhere, since the middle of the last century, and the 
owner of agricultural land has relatively been declining. 
The growth of cities, which is also symptomatic of indus- 
trial and social tendencies toward inequality, has not only 
in process been the means of making many rich through 
value-increase of real estate, but, as an accomplished 
fact, it is the basis of a new landlord class, in effect 
possessors of abstract property, who are certainly richer 
in the total, whose richest are doubtless far richer, and 
who are more numerous, than the feudal landlords of a 
former age. 

§ 3. Mineral Resources. 
The rapid exploitation of natural resources has been 
increasingly prominent in the last century throughout 
the world, but most of all in the United States. The 
extension of the cultivation of land has been one phase 
of this, but not so remarkable as the development of 
mineral resources. Intermediate in their nature between 
these two are lumber and grazing, both notable for the 
quota they have contributed to the number of American 
millionaires.^^ But the tendencies exhibited in lumberinsf 



See note at end of chapter. 



82 3] The Grozvth of Large Fortunes 89 

and cattle-raising are similar to those in mines and min- 
erals, where the rate and kind of exploitation are best 
observed. 

The extraction and utilization of minerals has made 
enormous strides, intensively throughout the world by 
technical improvements, and extensively by bringing into 
the market the products of the mines of new countries. 
Such enterprises, when important, are almost without 
exception carried out on a large scale, and by corpora- 
tions. They also exhibit a tendency to monopoly, ob- 
servable, for example, in American coal, iron, and copper. 
They thus afford appropriate food for the growth of 
large fortunes.^^ Not only so, but the production of 
some of the minerals, especially iron and coal, is an 
index of the growth of large-scale power-driven machine 
production and of capitalism in all lines. It is matter 
of common knowledge how recent is the mineral devel- 
opment of the United States, but figures for other coun- 
tries also astonish by their magnitude. 

It is calculated that the world's production of iron in 
1800 was 825 thousand metric tons. In 1898 it was 
36,159 thousand metric tons. The increase has mtilti- 
plied the amount 45 times in less than a century.^^ But 
the United States has outstripped all others in this devel- 
opment, having passed the United Kingdom in the pro- 
duction of iron and steel in 1890, and being now far in 
the lead. Of iron ore it produces more than any other 
three countries. It produces 37 per cent, of the world's 

^ Incorporated companies account for 86.3 per cent, of the value 
of the product of mines and quarries (1902 Census Special Report 
on Mines and Quarries, p. 66). In manufactures the corresponding 
proportion in 1900 was two-thirds. The average value of product for 
these corporations is somewhat less in mining than in manufacturing, 
but probably not enough less to account for the contribution of the 
value of raw materials to the value of manufactures. 

"^ For a detailed table see Juraschek, in Conrad III, p. 475- 



90 American Economic Association [^24 

iron and steel, while the United Kingdom and Germany 
together produce only about 40 per cent.^^ 

In the production of coal recent developments are not 
less startling. In 1800 the production of the world was 
12 million metric tons; in 1897 it was 650 million metric 
tons.^^ There has been an increase to 54 times the 
amount at the beginning of the century. The coal pro- 
duction of 1904 was close to 900 million metric tons.^'^ 
As with iron, the production of coal has been increasing 
at an accelerating rate. Again the United States exhibits 
the characteristic tendency in its highest degree. Al- 
though its production had scarcely begun in 1830, it has 
recently, in 1899, passed the United Kingdom, and now 
produces nearly half as much again as that country. Its 
prospects, as tested by area of coal fields, make the com- 
parison even more favorable. ^^ 

The utilization of mineral oil began only in the middle 
of the nineteenth century, since which time production 
has increased enormously. Two countries enjoy almost 
a monopoly of this product. The United States lost the 
leadership to Russia in 1898, but regained it in 1902, and 
has gone ahead at such a rate that in 1904 it produced 
almost half as much again as Russia.^^ 

The United States also leads the world by far in the 
production of copper. In fact it produces more than all 
the rest of the world put together, and more than seven 
times the product of any other country.^" This line of 
production has developed from almost nothing since the 

*" The Mineral Industry during 1904, pp. 253-4. 

"" For details see Juraschek in Conrad II, p. 562b, etc. 

" The Mineral Industry, p. 96. 

^ See table in Chisholm, Commercial Geog., 4th ed., p. 174. It 
appears that the United States and China are in a class by them- 
selves, each with nearly twenty times the area of the coal-fields of 
any European country except Russia. 

*' The Mineral Industry, p. 353. 

*" Ibid., p. 122. 



82 5] The Growth of Large Fortunes 91 

seventies. The production of copper, too, in this "age of 
electricity", has an importance and a symptomatic value 
in relation to industry next to that of iron and coal. 

The United States also leads in the production of 
aluminum, borax, salt, quicksilver, ^^ phosphate, and lead. 
In zinc, Germany alone is a little ahead of us. In silver 
Mexico barely leads the United States. In gold, South 
Africa, the United States, and Australia are close com- 
petitors for first place. 

This great development of mineral industries in the 
United States has been as recent and rapid as otherwise 
noteworthy. In the words of a recent foreign observer : 
"Not only does the United States far outrank other 
countries, but its supremacy in this particular sphere of 
activity is constantly becoming more pronounced. "^^ Re- 
markable as has been the growth in other lines, the 
mineral industries lead all others in rapidity of develop- 
ment.^^ The total value of our mineral output unmanu- 

51 List so far from Gannett, Statistical Abstract of the World, 1907, 

p. 22flf. 

^ Pierre Leroy-Beaulieu, p. 222. 

^ In the Report of the Industrial Commission (vol. XIX, Appendix 
I) are diagrams showing the increasing volume of production in the 
various lines in the United States. These data are used as the basis 
of the following comparisons for the beginning and end of the thirty- 
year period 1870 to 1900. Where the period, as indicated is different, 
the ratio has been calculated as if the same rate of increase had been 
maintained for the longer period. Population and its increase are 
added for comparison. 

Relative Volume of Production in the United States in 1900, 
taking the datum of 1870 as 100. 

Gold 159 

Silver 455 

Pig iron "33 

Copper 2^50 

Petroleum ^^5^ 

Bituminous coal (from 1880) 509 

Anthracite coal (from 1880) 189 



92 American Economic Association [826 

factured in 1902 was 797 million dollars. As late as 1870 
it was only 191 millions.^^ Of the product of mineral 
industries the value in 1904 is estimated at one and a 
half billion dollars. ^^ 

Not only has the United States produced the minerals, 
but it has produced the "oil magnates", the "coal barons". 

Cotton 225 

Wheat 221 

Corn 198 

Wool 181 

Sheep (from 1875) 126 

Swine (from 1875 137 

Cattle (from 1875) 168 

Milch cows (from 1875) 148 

Horses (from 1875) 140 

Iron and steel rails (to 1899) 417 

Crude steel (to 1899) 13850 

Cotton mills (takings) 321 

Woolen mills (takings, to 1899) 187 

Cigars and cigarettes (to 1899) 643 

Distilled liquors (to 1899) 197 

Fermented liquors (to 1899) 537 

Railroad miles operated (1871 to 1899).... 4i8 

Ton miles ( 1882 to 1899) 322 

Passenger miles (1882 to 1899) 143 

Value of exports and imports 192 

Tonnage, U. S. merchant marine 129 

Population 198 

To state in general terms the facts expressed by the above ratios, 
the products of agriculture have increased barely as fast as popula- 
tion, while the products of manufactures have increased perhaps 
twice as fast as population, and those of mines, on the whole, at a 
still greater rate. Internal transportation appears to make about 
the showing of manufactures, while interests in the mercantile 
marine and in foreign trade have not gained at a rate in proportion 
to population. 

'^ Mines and Quarries, p. 6. 

'° Mineral Industry, p. i. 



827] The Growth of Large Fortunes 93 

the "copper kings", and the "steel kings". ^^ As with the 
"unearned increment" of city land, our mineral resources 
have been conspicuously prolific producers of million- 
aires. These "unearned" increments have not been alto- 
gether unearned, for the pioneer in the discovery and 
development of natural resources deserves a large reward. 
The beneficiaries of the development in the United States, 
however, have been chiefly great and monopolistic cor- 
porations. These corporations are owned by the rich, 
who have thus been made rich or richer. 

§ 4. Foreign Investments. 

The exploitation of tropical and other colonies is to 
be mentioned as a phase of the exploitation of natural 
resources. But in the United States, which has only 
recently embarked in schemes of "colonization", it is far 
less important than elsewhere. The fringe of this devel- 
opment, coming within our commercial relations as it 
does, has affected us somewhat, but only in a minor de- 
gree as compared with the exploitation of our home 
domain. Some large American fortunes were m.ade by 
pioneers in the oriental and tropical trade. John Han- 
cock's fortune was made in the West Indian trade, which 
was also the foundation of the fortune of Stephen Girard. 

A phase of such international economic relations is 
public and private loans abroad. Lending capital abroad 
began with public debts, and was of small importance 
at the beginning of the nineteenth century. With the 
growth of the corporate form of organization of trans- 
port and industrial enterprise, and with the organization 
of stock exchanges and of international banking — the 
creditor or capitalist being thus enabled to live where he 



" See note at end of chapter. 



94 American Economic Association [828 

will — foreign investments in such enterprises have greatly 
increased in magnitude. 

At one time the British national debt was largely 
owned abroad, though more because of unsettled condi- 
tions on the Continent than because of superfluity of 
capital. Now the United Kingdom is the great creditor 
nation, with an income from foreign investments far 
greater than the income from its "lands". Giffen's esti- 
mate for 1886 was 85,318,000 pounds sterling for in- 
terest on such securities. ^^ This estimate is based on the 
1885 income-tax returns, where the corresponding items 
amount to 34,763,000 pounds.^^ The items of income 
from foreign securities reported in the income-tax sched- 
ule for 1902-3 amounted to 62,559,479 pounds,^^ which 
is of course less than all income from foreign invest- 
ments. There may have been improvements in methods 
of assessment such that a larger portion of this sort of 
income is now reached. But it appears that income from 
foreign securities, which was already in 1885 greater than 
the income from the lands of the United Kingdom, may 
have increased as much as three-fourths in less than 
twent}^ years, while the income from lands has declined. 

France is only recently a competitor of England, but 
appears to be taking from her the lead as the great source 
of new funds. The French are known to be the chief 
holders of the enormous Russian debt. French bankers 
are now regarded as the great source of free "capital".'**' 

Germany is also a considerable holder of foreign 
stocks. 



■=' G. of C, p. 161. 

^^ Ibid., II and 27. 

^ Com. of Inland Rev., p. 202. 

*° "Last year has surely threshed out the predominance of French 
gold in the world's money market." A''. Y. Evening Post, Financial 
Section, Feb. 25, 1906. 



829] The Growth of Large Fortunes 95 

The United States is still, on the whole, doubtless a 
great debtor nation, though it has recently been paying 
off some of its debts and even making some foreign in- 
vestments. The field of investment opportunity at home 
has been so great and so rapidly expanding that only 
lately have our accumulators begun fully to occupy it. 
That they are catching up at such a rate now, while we 
are still pushing ahead our home enterprises, is evidence 
of great accumulations. 

The riches of England, France, and Germany are 
greatly increased by investments abroad. More recently 
those of the United States have been thus somewhat 
increased. 

§ 5. Manufactures and Large-scale Production. 

The Industrial Revolution in England began in the 
last quarter of the eighteenth century, primarily as a 
result of a series of inventions relating to manufactures. 
In other countries, among them the United States, these 
changes did not begin to be noticeable until the nineteenth 
century. If the beginning of the Industrial Revolution 
is indefinite, the end is more so, for as yet it is not. There 
has probably been more improvement in technical pro- 
cesses in the last quarter-century than in the whole period 
before. These changes have strengthened and advanced 
capitalism and the factory system. In the United States, 
especially, the growth of manufactures, although this is 
still for the most part a new country, has been such that 
it threatens to take the lead away from agriculture, if it 
has not already done so. For 1790 Tench Coxe esti- 
mated the annual value of manufactured products in this 
counti-y at about $50,000,000.^^ In 1890 the value of 

"By rather crude methods he estimates the value of domestic 
manufactures in 1790 at $20,000,000. (View of the United States, 



9^ American Economic Association [830 

products was reported by the Census at $9,372,000,000; 
and in 1900 at $13,000,000,000, or 260 times as much 
as 1 10 years before. It is not necessary that these figures 
be accurate and perfectly comparable to be convincing; 
but for manufactures that are "factory product" it is 
probable that they understate the development. Pierre 
Leroy-Beaulieu prophesies that we will shortly surpass 
England in the manufacture of cottons and France in the 
manufacture of silks. '^^^ The same foreign student of our 
industrial development says it is ''certain that the United 
States is to-day and by far the first industrial power in 
the world, just as it is the first agricultural power, and 
it does not seem too much to say that its industrial 
strength, as expressed by the value of the output, has 
increased by five-fold from i860, while that of Germany 
has only doubled, that of Great Britain has increased by 
but one-half, and that of France shows a still smaller 
increase."'*^ 

As regards the present comparative rank of agriculture 
and manufactures in the United States, official opinions 
themselves are conflicting. Considering the question 
from the point of view of value of net product after 
deducting cost of raw materials and the like, the Twelfth 
Census's Chief Statistician for Manufactures says -.^^ 
"On this basis, it appears that the contribution of manu- 
factures and the mechanical arts to the wealth of the 
country exceeds the contribution of agriculture by more 

p. 262.) At another place (p. 430) he says the value of manufac- 
tures is much greater than, but by implication not double, the gross 
value of all imports. Perhaps $50,000,000 virould be about what he 
had in mind. 

"' U. S. in 20th Cent., p. xiv. 

*^ Pierre Leroy-Beaulieu, p. 162. Just beyond (pp. 165-6) he men- 
tions the qualification that the industrial population of Great Britain 
is still absolutely larger than that of the United States. 

*' Vol. VII, p. liv. 



831] The Growth of Large Forhmes 97 

than a billion dollars." The Chief Statistician for Agri- 
culture, on the other hand, reaches the conclusion:'*'* 
"Judged by investment, agriculture still leads manufac- 
tures by a wide margin." He also more than implies'*^ 
that, in point of power employed, agriculture uses more 
animal power than manufactures do mechanical power. 
Comparing the United States with other countries, the 
Chief Statistician for Manufactures is of the opinion'*^ 
that we have already for some time been the leading man- 
ufacturing country in the world. Though there was 
room for dispute in 1900, we may conclude from the 
known trend of events, and from the facts exhibited by 
the 1905 Census of Manufactures that, judging by mate- 
rial and market measures, manufacturing has now at- 
tained supremacy. Perhaps we should judge rather by 
the number and quality of men employed in the different 
occupations. 

Rates of development and changes in the importance 
of various occupations and industries in the United States 
are perhaps best measured by counting heads. We shall 
therefore use statistics of persons occupied in the differ- 
ent kinds of production to test their comparative import- 
ance at various times. Between 1870 and 1900, on this 
basis, agriculture made an absolute gain of over two- 
thirds, but manufactures grew more than twice as rap- 
idly, and trade and transportation three times as fast. 
All groups of occupations gained greatly in relative im- 
portance at the expense of agriculture. In 1870 agricul- 
ture employed about as many persons as all other groups 
together; in 1900 only about three-fifths as many. On 
going further back, the change becomes still more re- 



nvoi. V, p. XXV. 
*° Vol. V, p. cxxxv. 
" Vol. VII, p. Iv. 



98 American Economic Association [832 

markable. Sixty years ago, that is in 1840, it appears 
that all other occupations together employed not much 
more than one- fourth as many persons as agriculture 
alone. The United States was then a thoroughly agri- 
cultural country. ^''^ 



1890 


1880 


1870 


1000 


1000 


1000 


110 


78 


62 


493 


443 


381 


388 


242 


209 


663 


491 


450 



" Taking agricultural pursuits as the fixed point in our ratios, 

we find, for every looo persons occupied in agriculture at the 

given dates, the following numbers occupied in the other great 

classes of gainful occupations (Occupations, pp. 1-lii) : 

1900 

Agricultural pursuits looo 

Professional service 121 

Domestic and personal service 538 

Trade and transportation 459 

Manufacturing and mechanical pursuits.. 683 

The numbers occupied in agriculture increased in the following 

ratios : 

1870 1000 1890 1440 

1880 1297 1900 174s 

It is perhaps a fairer basis for comparing the importance of great 
classes of occupations to count only males in gainful pursuits. 
It is of little importance, for our purpose, whether the labor of 
women is unpaid auxiliary labor or is paid on a commercial basis. 
It would be desirable to eliminate all children from the comparison, 
for similar reasons, but it appears to be impossible for 1870, and 
their small number makes the elimination of little importance. The 
ratios for males are : 

igoo 

Agricultural pursuits lOOO 

Professional service 88 

Domestic and personal service 371 

Trade and transportation 453 

Manufacturing and mechanical pursuits.. 614 

The number of males in agriculture increased in the following 

ratios : 

1870 1000 1890 1421 

1880 1283 1900 1694 

The decade of the Civil War was a period of prosperity for manu- 
factures but of retarded agricultural expansion. Carrying back such 
occupation figures further would not weaken the impression made. 
In 1840, according to Tucker's contemporary estimate, based on 
census returns, ratios corresponding to those above were: 



1890 


1880 


1870 


1000 


1000 


1000 


80 


60 


50 


324 


314 


223 


392 


254 


220 


590 


443 


419 



^33] The Growth of Large Fortunes 99 

The tendency toward large-scale production and toward 
the corporate form of organization is increasingly domi- 
nant in these manufacturing enterprises."*^ The domi- 

Agriculture looo 

The learned professions 17 

Commerce 31 

Navigating the ocean 15 

Internal navigation g 

Sum of above three 55 

Manufactures 209 

Mining 4 

Sum of above two 213 

These figures may not be exactly comparable with those previously 
quoted, but, allowing for a wide margin of error, it is clear that this 
was almost exclusively an agricultural country sixty years ago. 
Tucker's figures as given are as follows (Progress of the United 
States, p. 142), being reduced in the above: 

Total number employed in agriculture . . . . i out of 4.5 



Ditto manufactures 

" commerce 

" the learned professions. 
" navigating the ocean. . . . 

" internal navigation 

" mining 



21.5 
145- 
261. 
304. 
516. 
1 122. 



For comparison with the above mode of expressing the same facts, 
following is the per cent, distribution of the number of persons, 10 
years of age and over, engaged in gainful occupations, 1880, 1890, 
and 1900 (i2th Census, vol. VII, p. liv) : 

igoo 1890 1880 

All occupations 100. 

Agricultural pursuits 35.7 

Professional service 4.3 

Domestic and personal service 19.2 

Trade and transportation 16.4 

Manufacturing and mechanical pursuits 24.4 

Fishing 0.2 

Mining and quarrying 2.0 

Manufacturing and mechanical pursuits proper. 22.2 
" The comparative size of manufacturing establishments, as tested' 
by average annual value of products, in 1905 (Bui. 57, p. 14), by^ 
form of organization was : 



100. 


100. 


37-7 


44-3 


4-1 


3.5 


18.6 


19.7 


14.6 


10.7 


25.0 


21.8 


0.3 


0.3 


1-7 


1.4 


23.0 


20.1 



lOO 



American Economic Association 



[834 



nance of both these tendencies is strikingly brought home 
to us in recent Census figures. If we may accept the fig- 
ures for 1900 as adjusted in the Census of 1905 as entirely 
comparable with the later figures, out of the 94 most im- 
portant specified industries, selected as employing 5000 or 

Incorporated company 213,310 

Firm 44.482 

Individual 14.943 

Such an average of course conceals the much larger actual size of 
the dominating concerns. The tendency to an increase in the rela- 
tive importance of corporations in manufactures, before noticed, is 
a datum to be associated with the above. As illustrating the ten- 
dency toward concentration into large establishments, the 12th 
Census (vol. VII, p. Ixxii) gives the data for which ratios are 
calculated in the following : 

Sixteen Industries Illustrating Concentration. 

Average number of wage- 
earners per establishment. 

Per cent igoo of 
1850 1900 1850 figure 

Agricultural implements 5 65 1300 

Boots and shoes, factory product (ear- 
liest date 1880, so that ratio assumes 

same rate of increase for the fifty yrs.) 57 89 390 

Carpets and rugs, other than rag 53 214 404 

Cotton goods 84 287 342 

Glass 60 149 248 

Hosiery and knit goods 27 91 337 

Iron and steel 53 333 628 

Leather, tanned, curried and finished.... 4 40 1000 

Liquors, malt 5 26 520 

Paper and wood pulp iS 65 433 

Shipbuilding 14 42 300 

Silk and silk goods 26 135 Si9 

Slaughtering and meat-packing 18 61 339 

Tobacco, chewing, smoking and snuff 30 67 223 

Woolen goods 25 67 268 

Worsted goods (only 3 establishments in 
1850, but the 1900 average is the highest 
of a regularly progressing series except 

for 1850) 793 306 37 

For data for intervening dates see the original table. This relates 
not at all to combination of plants. For data relating to the Betriebs- 

statistik of Germany see Lexis in Conrad, IV, circa 791. 



^35] The Growth of Large Fortunes loi 

more wage-earners in 1900, 37 showed an absolutely 
smaller number of establishments at the later date than 
five years earlier and in one other line the number re- 
mained the same. This condition was not due to a 
decline in the industries themselves, for only 2 of the 38 
employed fewer wage-earners at the later date.^^ They 
shared the great prosperity of manufactures in general, 
but the tendency toward large-scale production was 
strong enough to overbear in one-third of our important 
industries the stimulus prosperity imparts to increase the 
number of enterprises. Incorporated companies, though 
they were only 23.6 per cent, of the number of establish- 
ments in 1905, had 82.8 per cent, of the capital reported, 
and employed 70.6 per cent, of the wage-earners.^^ This 
is the industrial side of what we saw in the previous 
chapter in another aspect as the rapid increase of cor- 
porate securities. The increase in the number of salaried 
officials, clerks, etc., of manufacturing concerns, 42.7 per 
cent, in five years, while wage-earners increased only 
16.0 per cent., is also evidence of the extension of the 
corporate form of organization.^^ 

For testing the rate of development of the factory sys- 
tem and of machine production we have also an index in 
the use of power. The increase of aggregate motive 
power employed in manufactures according to Census 
figures,^- from 1890 to 1900, was 74.8 per cent. In the 
five years from 1900 to 1905 the increase was 39.0 per 
cent. For the decade from 1 880 to 1 890 the increase was 
74.6 per cent. ; for 1870 to 1880 it was 45.4 per cent. The 
importance of power is thus increasing at an accelerating 
rate, and much faster than manufacturing itself. 



*° The data are from Bui. 57, Table 84, p. 76ff. 
»» Bui. 57, P- 14- 

" Bui. 57, p. 9. Cf. also footnote below at pp. 137-9. 
« Bui. 57, P- 53. 



I02 American Economic Association [§3^ 

It is not necessary to prove that in a manufacturing 
population there prevails great inequality of wealth. 
Such a development was clearly foreseen. The following 
words of Franklin are prophetic : "Great establishments 
of manufacture require great numbers of poor to do the 
work for small wages; these poor are to be found in 
Europe, but will not be found in America, till the lands 
are all taken up and cultivated, and the excess of people, 
who cannot get land, want employment. "^^ DeToque- 
ville has an acute chapter, entitled "How an Aristocracy 
may be created by Manufactures," ^* in which he cor- 
rectly analyzes certain consequences of division of labor 
and machine production, and concludes: "If ever a per- 
manent inequality of conditions and aristocracy again 
penetrate into the world, it may be predicted that this 
[manufacturing] is the gate by which they will enter. "^^ 
Jefferson, before this, had expressed his belief that the 
United States would retain a republican form of govern- 
ment so long as it should remain a nation of agricultural- 
ists, but otherwise was doubtful. It is not an accident 
that Alexander Hamilton, who was not a republican, was 
the great protagonist of manufacturing development, 
seeing- in the labor of women and children a feasible 
escape from the obstacle of high wages. ^"^ 



°' Writings (Smyth's edition), VIII, p. 6ii. 

"II, p. 193. 

^^ The entire summing-up passage is both more grating and more 
reassuring: "I am of opinion, upon the whole, that the manufactur- 
ing aristocracy which is growing up under our eyes is one of the 
harshest which ever existed in the world; but at the same time it is 
one of the most confined and least dangerous. Nevertheless, the 
friends of democracy should keep their eyes anxiously fixed in this 
direction ; for if ever a permanent inequality of condition and aris- 
tocracy again penetrate into the world, it may be predicted that this 
is the gate by which they will enter." II, p. 197. 

^ See his Report on Manufactures, in several places. 



837] The Growth of Large Fortunes 103 

Small-scale production, with direct ownership and ad- 
ministration of the capital employed, maintains a middle 
class of entrepreneurs.^''^ Large-scale production destroys 
this class, ^^ greatly increases the amount of capital re- 
quired in the industry, adopts the corporate form of 
organization, and nourishes economic inequality with 
abstract property.^^ On the side of income from labor, 
too, large-scale production, involving as it must the more 
or less regimental organization of industry, gives to the 
decisions and directions of men with commercial knowl- 
edge and organizing skill, that is, the "captains of in- 
dustry", a greatly enhanced importance and value. Act- 
ing with such a group in such a way increases the power 
of own-production in a way to increase inequality. But 
this is as nothing in comparison with the influence of 
large-scale production in depressing a middle class own- 
ing concrete means of production, and in furnishing soil 
and material for large fortunes. 

Not only by increasing the amount of capital and espe- 
cially of abstract-property rights to income does large- 
scale production favor the growth of fortunes, but in 
degree as well as in amount the development of an ab- 
stract-property character is facilitated. Certain corpora- 

" The Carnegie Steel Company was, until recently, a partnership, 
on principle, as the Baldwin Locomotive Works still are. But such 
exceptions presuppose not only great fortunes, but the continuance of 
its creators in the business. 

°' This is the evil in what is, on the whole, a greater good, that is, 
the increased productiveness of labor. But the evil is not therefore 
less great, and if separable, as it is, from the good, it presents prob- 
lems which we are bound to seek to solve. 

°' The confusing of concentration of ownership with aggregation 
of productive capital by almost all the contributors to the Indepen- 
dent's (May I, 1902) symposium on "concentration of wealth" is 
presumptive evidence of connection between the two. Prof. Sumner, 
with no thought of abstract property and its possibilities, explicitly 
associates them (p. 1037). 



I04 American Economic Association [838 

tions, especially railroads, have acquired such assured 
financial standing as to make their bonds almost as good 
as "governments". Industrial combinations have also 
issued bonds, which, however, have not as yet acquired 
such standing. But the larger the concern, the less a 
fluctuating personnel determines its valuation. On the 
side of the investor, too, the multiplicity of stocks and 
bonds in the market makes possible virtual insurance — 
thus producing a further development of an abstract- 
property characteristic through the division and balancing 
of risks. The larger the fortune so invested the better 
this can be done. It may be affirmed, as a general propo- 
sition, that the wishes of the inactive capitalist have had 
about as much to do with corporate evolution as the tech- 
nical requirements of production. The dominance of the 
corporation in business is not more the dominance of 
capital in the concrete sense, than it is the dominance of 
the differentiated capitalist and of abstract property, over 
the personal or human factor in production. ^^ 

§ 6. Commercial Advantages of Large-Scale Business, 
including Combination. 

The corporation is at an advantage in interesting the 
capitalist or investor. ^^ This facility in getting capital, 
which results from the appetite for abstract property, 
tempts to undue multiplication of shares.'''- In times of 
rapid accumulation and of confidence the investing public 
can "digest" almost anything. The mere prestige of size 

"The flat-footed statement of Van der Borght (Conr. I, 185a) is: 
"Die Form der Aktiengesellschaft da geeignet ist, wo das Kapital in 
den Vordergrund tritt, und da nicht geeignet, wo die Unternehmer- 
arbeit von entscheidener Bedeutung ist." The increase of corpora- 
tions is thus evidence that capital is more and more dominant. 

'^Ihid., 183a. 

"^Ibid., 183b, 187b. 



839] Tlie Grozvth of Large Fortunes 105 

is a factor in making a favorable impression. Stocks are 
the most suitable material for speculation, and are often 
issued for such purposes. What else could be the out- 
come of the "financial law that stock-watering increases 
values" ?°^ 

Such commercial advantages of large-scale production, 
in dealing with the lender as well as the buyer, count for 
much. Industrial combination is effected very largely 
with a view to the stock market.^* For the rest, advan- 
tages in selling products — aside from the possibility of 
some degree of monopolistic influence on prices — are 
most noticeable among the advantages of industrial com- 
binations.^^ 

Integration or vertical combination is clearly a process 
of reducing the mercantile element and its risk. Industry 
is nearer to commerce than is agriculture, for there is 
buying and selling at both beginning and end of its pro- 
cesses; and in proportion as market dealings intervene 
between the various stages of manufacture, the mercan- 
tile factor is more prominent. Combination offers the 
advantage of bringing the merchant under control of the 
industry — or do the merchant and the financier control 
the industry as masters within it? — by eliminating his 
intervention between the subdivided processes of produc- 
tion, and even by including the intermediary between 
producer and consumer within the industrial concern 
itself. The internal organization of the factors of pro- 
duction calls for different qualities from those which 
secure the commercial success of an enterprise. In com- 



'^ Greene, Corp. Fin., p. 140. 

**Cf. Professor Meade's judgment, Trust Fin., p. 176 and else- 
where. 

" Cf. Jenks, Trust Problem, ch. II ; also Bullock in Ripley,— Trusts, 
Pools, and Corps., pp. 45off. 



io6 American Economic Association [840 

bination the two powers are invincible except from within 
by suicidal arrogance. 

The technical advantages of large-scale production, in 
the narrower sense of the term, affect the size of the 
plant, but do not produce the combination of many plants 
or establishments. Even as regards the size of the plant, 
the technical factor from the commercial side, as cost of 
transportation, is perhaps the most important clew to 
"increasing returns". Adam Smith's proposition, to the 
effect that industrial development is limited by the extent 
of the market, has not been altogether improved by at- 
tempts to formulate a "law of increasing returns". How 
much modern instruments of transportation mean for 
the "extent of the market" is a commonplace. The com- 
mercial advantages of large-scale enterprise are most 
directly supported by technical advantages in the case of 
retail trade in large cities. 

The commercial advantages of large-scale business and 
combination work both ways in favoring large fortunes, 
that is, by reaction in sustaining and helping to carry on 
further the tendency, on account of technical advantages, 
to aggregation of productive wealth under the manage- 
ment of fewer and fewer men, and also positively, by 
furnishing material to the stock market and by arming 
those whom it makes its agents with unprecedented con- 
trol of wealth and of conditions of business, and with 
some degree of monopoly power over prices. The effects 
are noticeable in the commerce of capital. The import- 
ance of New York banks and bankers in movements of 
combination is, much to their profit, very conspicuous. 

§ 7. Dynamic Conditions in Industry. 

Ever since the Industrial Revolution the field of invest- 
ment has, both intensively and extensively, been growing 



841] Tlie Growth of Large Fortunes 107 

larger and larger. This is another aspect of the great 
increase of capital. It means also large opportunities for 
the pioneer entrepreneurs who see where some new ven- 
ture may be undertaken with prospect of unusual profit. 
Ours is a dynamic era. The unprecedentedly rapid growth 
of capital is the great symptom. The paying of higher 
wages because of decreasing labor cost, the labor being 
more and more effective through improved appliances, is 
another phase of the same thing. 

Ever since the Industrial Revolution there has been a 
tendency to a falling cost of production and to a corre- 
sponding fall in prices. But prices of products do not 
fall so promptly as cost of production, and their tardier 
fall gives the gain, in the first instance, to the entrepre- 
neur. The consumer and laborer come in for their share 
later, meanwhile often leaving a very great margin of 
profit to the entrepreneur, which he gives up only gradu- 
ally, as forced to by competition. Or monopolistic de- 
vices may sometimes enable him to retain it indefinitely. 
Thus great advances in production are favorable to the 
acquisition of riches. This applies especially to new 
methods and degrees of exploitation of natural resources. 
There has been no period in the world's history when 
there has been a technical and economic development at 
all comparable to the most recent advances. We have 
above given some of the statistical evidence. Develop- 
ments in transportation and in many branches of manu- 
facture have been as striking as those in mineral indus- 
tries. The Industrial Revolution is a thing of the past 
only in the sense that rapidity of technical improvement 
has become chronic and is reckoned with. It is no longer 
revolutionary ; it is ordinary. 

The fall in cost of production has been more marked 
in the last half -century— possibly in England, certainly 



io8 American Economic Association [842 

elsewhere — than before. While the laborers or con- 
sumers could not have become much richer by division 
of the resulting gain among themselves, the large profits 
of the relatively few entrepreneurs have made many of 
them rich. Mountains are thrown up by intense dynamic 
action, to be worn down gradually and secularly. Of en- 
trepreneurs — rightly called "captains of industry" — who 
have been made millionaires by their pioneer work, the 
name is legion, especially in America, where the spirit 
of business enterprise is greater than in any other coun- 
try. Such fortunes are really a reward of ability, though 
the reward may often be greatly disproportionate to the 
ability, and certainly never has been so great before. 

§ 8. Transportation. 

Transportation industries, in their present character 
and importance, are creations of modern invention. The 
development of transportation, in means and in extent, 
is reciprocally cause and effect of the Industrial Revolu- 
tion, and a measure of its progress. The trade between 
Europe and India is historically the most important of 
all trades involving long-distance transportation. It has 
been calculated that exports to India in Roman times 
amounted to 2 million dollars, in the fifteenth century to 
12^ millions, and at the present time to 500 millions.^® 
Improvements in the building of roads and canals were 
thought of, and beginnings were made, in the eighteenth 
century. But the most and greatest of these, as well as 
the application of steam to transportation by land and sea, 
are achievements of the nineteenth century. International 
trade in breadstuffs and in the raw materials of industry, 
which are now the chief sources of freight, amounted to 
little until the middle of that century. 

Of modern means of transportation, railroads are the 
"Huber, as cited in Schmoller, p. 464. 



843] The Growth of Large Fortunes 109 

most important, for transportation by water has always 
been comparatively cheap. Railroad building has been 
the great promoter of industrial and commercial develop- 
ment, and especially, through greatly increasing the ex- 
tent of the market, of large-scale production. It has also 
been the most important single line of expansion of the 
field of investment. In railroad development the United 
States has led all nations since the beginning, and for 
long has had a greater mileage than all Europe together. 
It is hardly necessary to say that land-transportation, 
distinguished from trade or commerce, that is, buying 
and selling, as its technical handmaid, is, of all lines of 
economic activity, the most completely given over to 
capitalistic and large-scale enterprise. Where a service 
must be rendered at a particular place in conjunction 
with an expensive plant, direct competition is impossible, 
and indirect competition or substitution are either hin- 
dered or quite prevented by the requirements of place 
and time. The cost of rendering the service, moreover, is 
little dependent on the amount of use made of the plant, 
being chiefly a matter of fixed charges. Hence there is a 
possibility of "increasing returns", with growth of popu- 
lation and of demand, unexampled in other lines. It is 
the land-transportation industries, through the workings 
of invention and of modern technique, that are in just this 
condition. Growth of traffic means often an enormous 
increase in values for enterprises favorably situated. 
Means are being provided and tastes developed that 
cause yearly an increase of extensive travel. The growth 
of cities, also, makes the carrying of more and more per- 
sons from home to work a daily necessity , And freight- 
ing is bound to increase continually as modern industry 
carries further and further the division of labor and the 
the local concentration of production. 



no American Economic Association [844 

Railroads, street and steam, are well represented among 
our American millionaires, largely owing to just gains of 
pioneer enterprise. The personal names — Vanderbilt, 
Gould, Hill, Harriman, etc., — attached to our great 
American railway systems affirm the importance here of 
the captain of industry or the financier. 

In railroads and the like, capitalization has much more 
than kept pace with capital invested. Indeed, the latter 
is, in many cases, about represented by bonds. By pro- 
cess of capital investment and capitalization together, 
American steam railways now have a commercial valua- 
tion oi iiy^ billion dollars. This capitalization of differ- 
ential or monopolistic advantage — the same process as is 
observed in city ground-values — of course affects street 
as well as steam railroads. Such capitalization of increas- 
ing incomes greatly multiplies that "capital" and that ab- 
stract property which are the material of large fortunes. 
Of course the occupier of the opportunity gets the benefit 
of such developments. Whence many millionaires. 

§ 9. The Modern Commerce of Capital. 

The increasing importance of trade is due to a progres- 
sively more complete supplanting of the natural by the 
money and credit economy, and to the greater weight of 
the finer processes in manufacture, which have back of 
them a larger number of exchanges. The complaint of 
commercialism and of the dominance of the pecuniary 
point of view in modern life is not without warrant, but 
the tendency is at the same time not without justification. 
Capital and its income have followed the general tendency. 
The last half -century has seen developments in the com- 
merce of capital which could not have been imagined 
before. These developments are important phases of the 
already discussed increase in amount and differentiation 



845] The Groivth of Large Fortunes 



III 



in kinds of capital. Banks, which are institutions trading 
in credit and abstract capital, have greatly increased in 
importance. In thirty years, from 1874 to 1904, the re- 
sources of the national banks of the United States in- 
creased to more than 3>4 times the amount at the earlier 
date.*'^ Bank clearings and their tendency are likewise 
significant of the increasing use of credit and of the in- 
creasing fluidity and abstractness of capital. In 1906 the 
total of clearings for the United States was nearly three 
times the amount of fifteen years before. Clearings at 
the New York Clearing House in 1906 were I4>4 times 
what they were fifty years before.^^ Commercial banks 
are primarily manufacturers and standardizers of short- 
time credit or dealers in commercial paper. They use 
very little of their funds for permanent investment. The 
differential agent of the industrially inactive accumulator 
of funds, however, is the savings-bank, especially for the 
small saver, and the recently established American insti- 
tution, the trust company. These for a small margin act 
for their patrons as insurers of regular income and expert 
judges of securities. Savings-banks and trust companies 
seek long-term investments in mortgages and stocks and 
facilitate the evolution of abstract-property income. 
Such institutions have also exhibited remarkably rapid 
growth. ^^ 

The banker and stock-broker see things in terms of 
money-value. Through them and their like, instruments 
and means of production, even more completely than is 

"The amount in December, 1874, was $1,902,409,638; and in Sep- 
tember, 1904, it was $6,975,086,504 (Rept. Comptroller of the Cur- 
rency, 1904, I, PP- 518-9, 538-9)- 

**For N. Y. $104,676,000,000 and for the U. S. $159,809,000,000 in 
1906. {Commercial and Financial Chronicle, vol. 84, p. 75- Figures 
for comparison are from the Comptroller's Report.) 

*' For certain statistics of savings banks see footnote below at pp. 
135-136. 



112 American Economic Association [846 

the case with consumption goods under the dominance 
of market conceptions, come to be treated as if the money- 
value aspect were almost exhaustive of their qualities. So 
much of the state of industry comes thus to be built upon 
a basis of mere money values and on credit in terms of 
money that a disturbance in such money-exchange and 
credit adjustments destroys the equilibrium of business. 
Attempts at more conservative readjustment bring on the 
commercial panic and forced liquidation. Commercial 
crises are characteristic of the last century and of the most 
advanced industrial countries. Value-gains to the few, as 
well as losses, in the process of readjustment and revalua- 
tion are sometimes enormous. The money values which 
have declined but little in times of depression have 
gained relatively very greatly. The men who are best 
able to extricate themselves, who have protected them- 
selves best from the start, are of course the skilled profes- 
sional dealers in abstract capital. 

In the business of investment the insight of the pur- 
chaser of stock may be such as not merely to give to him 
those most valuable in proportion to their price, but, if 
those in the business of invesment are in general shrewd 
and conscientious, and if their judgment prevails, as it 
will more or less, only meritorious enterprises will receive 
the support of inactive capitalists, and there will conse- 
quently be a saving of capital and a greater product for 
society. There is room thus for the development of the 
entrepreneur in the business of investment. Under dy- 
namic conditions especially, the better foresight and judg- 
ment of the expert in securities prevent waste of new ac- 
cumulations and in effect increase capital. In time, too, 
perhaps the financial experts will be able to do better than 
merely extricate themselves from commercial crises. The 
productiveness of the picker of the best industrial enter- 



847] The Growth of Large Fortunes 113 

prises is derivative or secondary, like that of the producer 
or saver of capital. But it is not the less important for so- 
ciety. The importance of the function is shown by the 
appearance of a special class of business men and business 
institutions that serve as agents of inactive investors for 
this purpose of choosing investments. Thus for the 
owner of capital its character as abstract property is made 
perfect. 

Bankers should be the ones to check the tendency of the 
business community to strain credit beyond the limits of 
safety. The banker is in a position to be best able to 
interpret rightly general tendencies in evidence in the 
investment market. But bankers in general seem as yet 
to be carried with the tide. Only the shrewder ones know 
when and where to call a halt, often much to their own 
profit, but with little effect on the drift towards over- 
strain, panic, and depression. 

The banking and brokerage businesses are about the 
best kind of training for dealing in values of securities, 
hence from this class of business men are especially likely 
to come those who, from a small beginning, make them- 
selves rich by "investments", that is, by speculative gains 
from spontaneous increase in the value of securities. 
Speculation in stocks, too, whether professional or inci- 
dental, is the most tempting and fruitful of all speculation. 

§ 10. Speculation, Professional and Other. 

Time- and place-values are of greater commercial im- 
portance in the modern world than they have ever been 
before. This is an inevitable result of the increasing dom- 
inance of the exchange and money economy and of tech- 
nical improvements facilitating transportation. While 
these technical improvements should in the long run — 
assuming the remediableness of recurrent commercial 



114 American Economic Association [848 

crises — work for the reduction of the uncertainties of 
trade and narrow the sphere of the professional specula- 
tor, in the process of their rapid development they have 
for the time-being increased his opportunity. Invention 
also frequently changes conditions of manufacture, neces- 
sitating unexpected adjustments. Real estate speculation 
has flourished with the growth of cities. The development 
of large-scale production and combination is throwing 
more and more new issues of corporate securities on the 
market, the investment character of which is not yet 
known. 

The professional speculator is a sort of entrepreneur 
with the commercial side magnified indefinitely and the 
organizing and industrial side left out. The proceeds of 
speculation are incremental income and are like abstract- 
property income in respect of being of a differentiated 
non-administrative character. Conjuncture profit and 
speculative gain are characteristic of trade. Changes in 
the conditions and relations of production and consump- 
tion are the basis of speculation. Time-values are its sub- 
ject-matter. Speculative risks are a necessary incident of 
mercantile occupation, that is, of buying to sell again. But 
the merchant seeks his gain chiefly by enhancing place- 
values. His importance is a reflection of the importance 
of transportation. The specialized speculator attends to 
timc-x^iints."'^ The speculative element, and resulting 
incremental gain, is never absent from commercial trans- 
actions, even those of the producers of elemental and 
form-values. But "producers" try to reduce to a min- 

™ Cf. the following : "The trader's service to society consists in 
getting goods from one market into the other. His normal profit 
consists of the normal margin between the prices in the dififerent 
markets. The speculator's profit, on the other hand, comes from 
fluctuations in price in the same market; he may buy from and sell 
to the same person and still perform his function." Emery, Am. 
Ec. Assn., I2th Annual Meeting, p. 109. 



849] The Grozvth of Large Fortunes 1 1 5 

imum the speculative risk. Merchants also are often glad 
to be able to secure themselves against losses from changes 
of price with time. Hence there is a legitimate place for 
the professional speculator, as one who insures evener 
values by smoothing out the fluctuations of supply and 
demand. "^^ If this work is well done, the outcome is nega- 
tively productive, that is, there is prevention of malad- 
justment and waste of values. In putting themselves in 
a situation to gain by changes in value, speculators reduce 
such changes. Their purposes pertain clearly to values 
rather than to valuable things. Their intentions do not 
include the creation of valuable things or valuable quali- 
ties, so it is doubtful if their function can at best be con- 
sidered productive in the full meaning. The greater their 
efficiency, too, the less their gain or "reward". This prop- 
osition may justly be stated in mathematical terms of 
inverse proportion, as is the case of no other class in 
economic society. But their operation may be very bene- 
ficial, and their gain may be earned. The adequate per- 
formance of the function supposes, however, that specula- 
tors know more of prospective changes in prices than do 
producers, and even more than most merchants. There 
must also be competition of numerous speculators who 
know, so that the public shall get the benefit of their fore- 
sight. Their function is highly important under condi- 
tions of production in a money economy for the market. 

Time- and place-values are relatively personal, varying 
with individual taste and exigency. Elemental and form- 
values, are relatively impersonal, more completely ame- 
nable to generalizing treatment, and to social judgment 

'^Professor Emery (Speculation, p. iisff.) gives statistics which 
seem to indicate the importance of speculation in reducing fluctua- 
tions in prices. But, as he says, other factors which enter are 
quite as important. Improved means of transportation count for 
much in a comparison with previous conditions. 



ii6 American Economic Association [850 

and social valuation. A "fair price", that is, a fixed and 
generally acceptable market price, is more nearly conceiv- 
able in the case of these latter. In the former the skilful 
bargainer and speculator finds his great opportunity. He 
can play upon the uncertainty and indefiniteness in the 
mind of the other party to a sale v^ith a profit to himself 
limited chiefly by the scale of the transaction. It is seldom 
that his methods are clearly unfair. But it is sometimes 
difficult to draw the line between overreaching in bargain- 
ing and downright plunder. He needs to be held in check 
by competitors ecjually versed in market lore and lure. 

Though speculators may perform a service to the com- 
munity, the similar service of those who are not profes- 
sional speculators but are active entrepreneurs incidentally 
taking advantage of market conditions is more certain. 
The active entrepreneur who is a "business man" is likely 
to possess a sounder knowledge of his particular field 
than the professional speculator. If he makes the most of 
superior judgment as to future conditions by buying raw 
materials when they are a good bargain and holding off 
when they are unduly costly, and by manufacturing for 
stock in dull times, he may make a "profit" out of value- 
increase which men do not usually grudge him. In fact 
they are likely to consider it earned, though it is not effort 
or sacrifice but commercial shrewdness which secures its 
acquisition. If there are enough of such business men in 
a position to compete effectively with each other, not only 
is society benefited by their commercial shrewdness, but 
the profits are not disproportionate to the service. They 
are likely still to be much greater than the profits of the 
manufacturer who does not pay much attention to the 
fluctuations of the market. 

We need a term for the class of men who are clever in 
seeing where there will be value-increase. Business men 



851] Tlie Grozvth of Large Fortunes 117 

are in general those who have most of this quality. Spec- 
ulators are a smaller class looking to this sort of thing 
only, but they are tempted by this particular aspect of all 
business, especially as things focus in the stock market, 
and hence do not know this or that particular line so well 
as the business man. The speculator, moreover, is likely 
to be such not particularly by reason of his fitness for the 
calling, but because he has the gambling instinct. The 
mere inclination to take risks, to find some basis for a bet, 
even if there be method in the madness, is not a thing that 
ought to be greatly rewarded, though in fact it sometimes 
pays very well indeed. Even in the case of the more le- 
gitimate incidental speculative activity of the business 
man, there is seldom a due proportion between effort or 
capacity and pecuniary proceeds. 

Fluctations of value and gains from value-increase, 
whether professional, incidental, or even involuntary, may 
not be individually greater than they used to be, but they 
are of greater importance than ever before, because of the 
universalizing of the money measurement of goods and 
the basing of business and prices on credit. Speculative 
gains play a greater or less part in the profit of all sorts of 
entrepreneurs. Banker and broker acquire too much of a 
knowledge of stocks not to use it, at least incidentally and 
occasionally. No merchant or dealer can entirely avoid 
speculative risks, and he does not always wish to. The 
commercial side of the work of the entrepreneur in manu- 
facturing is inevitably becoming more and more import- 
ant. The business man who buys on credit is in effect a 
dealer on a speculative margin, though the uncertainty 
may be comparatively small. Credit is the great means of 
professional speculation by marginal holdings as well as 
a source of disturbances which afford more occasion for 
it. Even the farmer, though he is the most helpless of en- 



ii8 American Economic Association [852 

trepreneurs in relation to price changes, figures much on 
future prices and even occasionahy, perhaps wisely, buys 
"May wheat". 

An international market for the raw materials of man- 
ufacture has developed the specialist speculator in cotton, 
wheat, and other produce. The service to economic 
society from legitimate speculation of this sort, though 
not different in nature, is clearer than in the case of 
stocks, because industry is directly benefited by steady 
prices, or prices determined ahead. But all lines of pro- 
duction, either in their produce or in their securities, 
contribute material for speculation. Prices of securities 
are rather result than cause of conditions of production, 
hence the great primary branches of production depend 
little upon them. But the complicated nature of their 
determinants and their sensitiveness to all sorts of influ- 
ences and particularly to general credit conditions, make 
them the most attractive material for professional specu- 
lative dealings. 

The favorite material of speculation is stocks. Stock 
speculation was fashionable in the days of Law and of 
the South Sea Bubble; but the present opportunity is im- 
measurably greater. The total of listed and unlisted 
securities of the New York Stock Exchange was, be- 
tween 1868 and 1902, multiplied to five times the amount 
at the earlier date.''^^ Stock-speculation results usually, 
that is, for the inexpert, in a loss, but may result in 
the getting of a fortune, and many fortunes have been 
made large in this way. The percentage of profit on a 
margin may be a multiple of many times the investment. 
And those who come out leaders or "are let in on the 
ground floor" are few enough so that they may become 



" Pratt, Work of Wall St., p. 82. The amount in 1902 (Jan. 30) 
was $15,019,085,962. The estimate for 1868 is $3,000,000,000. 



§53] The Growth of Large Fortunes 119 

rich. Moreover, dishonest manipulation of stocks by 
"insiders" did not altogether cease when Gould was 
driven from control of the Erie Railroad. 

The policy of over-capitalization on the part of mining, 
industrial, and other corporations' — itself a speculation — 
supports the tendency to speculation.'''^ Reorganizing 
corporations — both means and result of speculative hand- 
ling of them — and underwriting new issues afford such 
opportunities for speculative gain as were never before 
known. 

The gains of the modern promoter and financier are 
speculative in their nature. Since time is the essence of 
speculation, it seems paradoxical to speak of "timeless 
gains" of such men.'^^ Yet the closing of deals necessary 
to the organization of a combination is so little a question 
of mere time that it would be pointless to express the 
gains of the promoter and financier as a rate per cent. 
per annum upon an investment. The possible contribu- 
tion to large fortunes is, of course, all the greater. The 
Morgan syndicate which financed the United States Steel 
Corporation, by holding themselves ready to furnish 250 
million dollars, and actually advancing only 25 millions, 
made a profit on the transaction of 50 millions in twelve 
months. 

But no one can tell what the future may bring forth. 
Speculators are at most but relatively better informed 
than their fellows. There is reason for supposing that 
the average speculator is not better able to forecast the 
future than other dealers. Speculation, because of ignor- 
ance, may as well increase as reduce fluctuations in 
prices. Speculation, even for the sharpest and best in- 

" Cf. Ripley, Trusts, Pools, and Corps., p. xxii. 

'* Cf. Veblen, Business Enterprise, p. 124. Elsewhere (pp. 167-8) 
he speaks of the "traffic in vendible capital" as the most important 
source of great fortunes known to history. 



I20 



American Economic Association [854 



formed, always contains an element of uncertainty, that 
is, it appeals to the gambling instinct. The fact that it is 
to a degree a game of skill merely strengthens its attrac- 
tiveness, for the egotism of each tells him he has the 
skill. That one or few should gain much by the loss of 
others never has been an extensively effective deterrent 
in human conduct. The lottery is based upon just this 
principle of concentrating many small losses in a few 
great prizes. The institution of marginal holdings gives 
to stock speculation the charm of a lottery. With such 
extraneous means of attraction, it is safe to say that only 
a small minority of speculators are recruited from the 
shrewdest, most experienced, and best informed of the 
mercantile classes. But the more numerous the sheep 
and lambs who don't know, the more profitable the shear- 
ing for the one who knows or is lucky, or is both knowing 
and lucky. Some, too, play with loaded dice, that is, they 
"rig the market".'''^ It has been said that the cost of the 
gold mined in the world — at least before the recent appli- 
cation of improved technical processes under large-scale 
production to low-grade ores — exceeded the value of the 
product. The fortunes made in California gold-mining 
are not inconsistent with this, but form a part of the 
reason for it. So it is with the fortunes made in "stocks". 
And they, too, are numerous. '^^ 

Speculation is of course undertaken by men of diverse 
ability and knowledge, and their inequality obtains mag- 
nified expression in the pecuniary results. But as specu- 
lation approximates in character to mere gambling, the 
situation does not become favorable to equality in the 
results. According to the mathematical theory of proba- 



'° For Mr. Conant's description of the process, see Atlantic 
Monthly, 1906, p. 238. 

" See note at end of chapter. 



121 



855] The Growth of Large Fortunes 

bility, a purely chance distribution and redistribution of 
gains, with possessions originahy equal, creates inequality 
and continually increases its degree. Gains from specu- 
lative practices are always contributory to economic in- 
equality. 

§ II. The Economics of Government. 

The chances of war are, through speculative enterprise, 
a great cause of large fortunes. War, aside from its 
uncertainties, destroys capital and increases the value of 
present goods, thus raising the rate of interest and caus- 
ing a decline in the value of income-yielding property. 
Changes in taxes,'^^ the fluctuations of public credit and 
perhaps of paper money, government contracts for certain 
kinds of goods urgently needed, all give the shrewd 
capitalist and merchant his chance. Our American crop 
of millionaires began to be noticeably important in the 
period just following the Civil War. Strictly political 
sources of riches are, under modern conditions, less im- 
portant than formerly. But government and war as 
economic factors still considerably affect the growth of 
fortunes. 

Public debts, as we have seen, were about the earliest 
great form of abstract property, and have always been a 
favored material for inactive investment. The "financ- 
ing" of princes and states has been a source of riches 
since the very beginnings of modern private finance. 
Such is the suggestion of the names Medici, Fugger, and 
Rothschild.'^ Lending money to princes was a very 

~^vid A. Wells (Prac. Econ., p. 198) estimates that $100,000,000 
was made by distillers and by speculators and dealers in distilled 
liquors on account of the changes in taxes between July i, 1862, and 

Jan. I, 1865. . , 1 

" For an account of the origin of the fortunes of the latter two, 

see Rich. Ehrenberg, Grosse Vermogen. 



122 Auicrican Economic Association [§5^ 

risky business, and was correspondingly gainful when 
well-judged. With the establishment of popular govern- 
ment, national debts are felt to be more secure, and the 
people have become very familiar with this form of 
abstract property, so that now there is probably a ten- 
dency to decentralization of holdings, at least as com- 
pared with other securities. National and other public 
debts have grown so in the last century,'''^ though they 
also grew at an enormous rate in England in the eigh- 
teenth century, ^*^ that there is room for both small and 
great. Two billion six hundred million dollars of debt 



'* The national debt of the world in 1905 amounted to approxi- 
mately $35,000,000,000 (1906 World Almanac, p. 159, "from smnmary 
prepared by the Bureau of Statistics, Department of Commerce and 
Labor"). Figures for the national debts of the principal countries 
of the world at various dates are given in the Census of 18S0 (vol. 
VII, Valuation, Taxation, and Public Indebtedness, p. 267), as 
follows : 

1848 $7,627,692,215 1870 $17,117,640,428 

i860 10,399,341,688 1880 23,286,414,753 

The figures for 1848 are for France, Great Britain, Russia, Spain, 
Italy, United States, Austria-Hungary, Portugal, Holland, Canada, 
Sweden and Norway, Greece, German Empire (to 1870 the German 
Confederation), Denmark. In i860 Turkey is added; in 1870 Aus- 
tralia and Roumania. In i860 Sweden and Norway are not included, 
but they are at other dates. For these same countries the latest 
figure (from the World Almanac as above) is $26,311,000,000. This 
should be increased by a matter of hundreds of millions on account 
of the Russo-Japanese War. These figures take no account of debts 
of local governments, municipalities, etc., which are much more 
recent, but are now of comparable importance. The national debt of 
Great Britain amounted to $61,317,900 in 1700, and was increased 
by the numerous wars of the i8th century, and especially by the 
Napoleonic Wars, till it stood at $4,389,583,000 in 1815. (From 
figures of Dudley Baxter, Census as above, p. 270.) The debt 
of France had a checkered career in the i8th century, with frequent 
scaling down or repudiation. 

*° Hume described the possible ways by which an end might be put 
to a national debt as either "natural death" or "violent death", neither 
of which involved payment. 



857] ^^^^ Growth of Large Fortunes 123 

was created by our own Civil War. Such developments 
have not promoted economic equality. ^^ To provide a 
warring government with funds is a greater undertaking 
now than it was in the days of Charles V. But financial 
powers have grown at least as rapidly as the needs of 
states, so it is said to be possible for a few financial 
magnates to determine whether a great European state 
shall go to war and when it shall make peace. 

For governmental policies to be directed by the eco- 
nomic interests of some particular class is older than 
mercantilism, whose modern heir lineal is protectionism. 
Universal suffrage has lately meant a hearing, and more 
practical things, too often of mere private class interest, 
for organized labor. But the business man is an older 
hand at manipulating or "owning" politicians.^^ We can 
see his influence in the recent renascence of "coloniza- 
tion", in the interest of exploiters of the resources of the 
tropics. The results of the insufficient education of the 
voter and of the politician in the distinction between 
private interests and the public interest are not favorable 
to the "small" but economically independent people of the 
middle and manual labor class. 

In another way, however, modern governmental poli- 
cies tend more and more to promote economic equality 
in certain respects. If there be, on the whole, a marked 
tendency to concentration in private riches, there is a con- 
siderable offset against this in the great development of 
public property. Such wealth is most of it collectively 
or democratically enjoyed. Even where wealth pubHcly 
owned is operated with a view to revenue, other motives 
"^^ofessor Henry C. Adams (Pub. Debts, pp. 39, 5o) says that 
public debts tend to perpetuate class distinctions. He quotes statis- 
tics of the ownership of bonds, and believes (p. 47) corporate owner- 
ship cannot be considered an alleviation of the inequality. For such 
statistics see footnote, p. 48, above. 



124 American Economic Association [858 

besides profit influence the policy of the government in 
regard to it.^^ The conditions of labor are notably good 
and wages high, perhaps notoriously high, in such em- 
ployment. Under popular government the amount of 
public property will probably continue to increase. Popu- 
lar government has already doubtless greatly favored the 
tendency toward collective wealth. De Toqueville, in 
his day, admired the enterprise of Americans in the 
execution of great public works, "in a nation which con- 
tains, so to speak, no rich men".^^ Semi-public endow- 
ments for educational and charitable purposes are also 
acquiring more and more importance. The great private 
corporation is significantly pointed to as a stage of transi- 
tion to socialism. It is at any rate developing methods 
of business organization from which municipal corpora- 
tions and the state may learn much. 

It must not be forgotten, however, that public works 
are paid for chiefly by the issuance of bonds, which are 
private riches. Not until these are paid off is there a 
clear gain in public property by public "ownership". 

A peculiar sort of state activity — peculiar as regards 
the logical or possible outcome at any rate — is state aid 
to investors, by intention, of course, so far as it is inten- 
tional, to small investors. French politicians are not 
anxious to adopt measures to reduce the public debt, 
because it is so broadly held and so popular a form of 
investment. The policy of the English postal savings 
bank since 1896 involves a gratuitous gift of interest to 
small receivers of abstract-property income. The general 
desirability of such practices is, to say the least, proble- 
matical. Their democracy is more than questionable. 

^^ Adolf Wagner (in a university lecture) makes the statement 
that one-third of the income of the Prussian people is income of the 
Prussian state, and one-fourth of the people are in its employ. 

"II, p. 191. 



859] The Grozvth of Large Fortunes 125 

§ 12. Interest Rates and Tendencies. 

The rate of interest has an important place in the com- 
parison of rich and poor, for upon it depends somewhat 
the degree of separation between the two. It is from 
income, in its two forms, income from property and 
income from personal effort, that riches or more riches 
must be accumulated. The comparative possibility of 
achieving riches depends upon the absolute amounts of 
these forms of income; but the comparative importance 
of a given degree of accumulation depends on the rate 
of interest. The rate of interest may be low while in- 
comes from property are large, if there is already con- 
siderable concentration. Large income from personal 
effort and foresight, at least to the extent of putting one- 
self in the way of a gift from nature or from society, 
must be the original source of riches. Further accumu- 
lation is facilitated by a high rate of interest ; any given 
degree of riches is also more easily reached. For the one 
who must begin with nothing, a low rate of interest is, 
on the whole, a barrier to riches. But there are those 
already rich, and with large incomes from property. For 
them further accumulation is still easy and the low rate 
of interest puts others at a disadvantage, so long as the 
large incomes from property are much larger than the 
large incomes from personal effort. Family pride will 
sustain the effort of those already rich to keep their 
relative position in the face of a falling interest rate. In 
some cases riches will increase without effort or sacrifice 
as the rate of interest declines. This is the situation of 
those who have sources of fixed income, like land and 
"monopoly", which will be bid up as interest falls. But 
as regards those whose source of savings is from personal 
effort, provision for the future by income from property 
becomes, in effect, the sacrificing of present possibilities 



126 American Economic Association [860 

to a more and more remote future. As the interest rate 
falls these will save rather for a reserve and thus in 
limited amount. The lower the interest rate, the greater 
the economic separation, other things equal, between the 
rich and those with income only from effort.^^ And the 
rate of interest is lower than it used to be. 

The low rate of interest may, however, be the oppor- 
tunity of the entrepreneur and thus may help to create 
numbers of large incomes from personal effort and make 
riches easier of achievement to the class most likely to 
originate fortunes. But where the rate of payment is 
low, it is more necessary for the entrepreneur to have 
some capital of his own as a margin for insurance if he 
is to benefit by the low rate. The gains of entrepreneurs, 
too, in such piping times of large-scale production as the 
present, are not the moderate gains of many, but the 
large gains of a few. Hence it may be doubted whether 
the low rate of interest in its relation to active profit- 
making promotes the extension rather than the centrali- 
zation of wealth. But, with interest low, inequality of 
personal ability is probably more likely to produce in- 
equality of property. 

A falling rate of interest has an unfavorable effect on 
accumulation from income from personal effort for the 
achievement of riches, since it weakens the motive to 
save and may prevent saving for investment where there 
is considerable sacrifice involved, that is, among those 
with small incomes. But for those already rich a declin- 
ing rate of interest is an incentive to save in order to 
maintain social position. It is also a symptom of large 
saving. Falling interest favors the activity of entrepre- 



** Paul Leroy-BeauHeu (Repartition des richesses, ch. ix) says a 
low rate of interest diminishes saving in the upper classes and in- 
creases it in the lower. Perhaps he believes the latter because he is 
a Frenchman, but why the former I cannot see. 



86i] The Growth of Large Fortunes 127 

neurs. But it also tempts to speculation and may ruin 
many an entrepreneur and owner who were not satisfied 
with the rate of income on secure investments and have 
embarked without sufficient knowledge in hazardous busi- 
ness. The falling rate indicates that inactive accumula- 
tions are more than keeping pace with the expanding field 
of investment. 

The amount of interest income, together with the fact 
of high degree of concentration in its distribution, is most 
important in relation to the growth of large fortunes, and 
is more important the lower the rate of interest. The 
amount of capital is increasing, as we have seen, much 
more rapidly than population. Wages and salaries per 
capita are also increasing. It is a question whether in- 
come from property or income from labor is increasing 
the faster. ^° But income from property is itself much less 
democratically distributed than salaries and wages. ^^^ And 
such incomes are by comparison perpetual and thus, as 
well as from their size, afford clear possibilities of accu- 
mulation for permanent investment not contained in in- 
come from labor. Hence, provided the strength of the 
motive to save is the same in the two classes, conditions 
are favorable to further concentration. 

That most savings must come from the rich, and that 
further concentration of riches is continually in process, 
is implied in the familiar argument in behalf of the rich, 
that it is their social function to save.^^ Although the 
argument is much less convincing for America than else- 

^ It is Giffen's view (1883, p. 619) that capital is weighing more, 
but its income less, in the scale. 

^^^ Cf. footnote above at pp. 44-7. 

^'Giffen, e. g., 1883, p. 622; and Philippovich, p. 321. It has been 
suggested that here is an automatic remedy for monopoly, in that the 
monopolist must find investment for his savings, and thus competi- 
tion will be revived. 



12 8 American Economic Association [862 

where, it does appear plausible that the rich are the only- 
ones who can afford to save for investment. The greatest 
incomes are incomes from property, and certainly great 
saving with least cost may occur among such. So far as 
interest is re-invested, there is a geometrical growth of 
riches. "To him that hath shall be given." So far as it 
is true that money makes money — and it is largely true — 
the factor of previous concentration must soon outweigh 
all natural inequality of ability. And the process may 
now proceed almost regardless of ability. With the de- 
velopment of modern abstract-property devices, lack of 
ability has lost much of its effectiveness in destroying 
fortunes. The rich are given an initial advantage which 
they are no longer in much danger of ever losing. 

It is a curious argument of some^'^ for inherited eco- 
nomic inequality that great fortunes descend to men of 
corresponding inherited ability. It is hard to see why 
in justice he who is handicapped by nature should also 
be handicapped by human institutions. But we are not 
concerned here with the question as to the justice of 
such arrangements. It is doubtless a fact that there is 
some tendency to an association of ability, at least of a 
certain kind, with inherited means. The fact that con- 
cerns us is that such an association must tend to increase 
concentration of riches. Simply put, if the ratio of 
ability is as i to 2 and of initial means as i to 2, then, 
when a union of greater ability with the greater means 
works out its effect, the resulting economic inequality 
will be as i to 4. Thus the concentration is not pro- 
portioned to ability, even if based on ability. And it 
must be remembered, too, that it is not the whole amount 
of ability so much as the degree of its concentration upon 



" Cf., e. g., Schmoller, in his recent controversy with Biicher. 
The argument is more often implied than clearly stated. 



863] l^he Grozvth of Large Fortunes 129 

a particular aim that determines its effectiveness. It is 
concentration of ability and effort upon getting rich or 
getting richer, an aim that is not particularly worthy, 
that creates the greatest fortunes. In other words, it is 
narrowness as well as ability. ^^ This counter-argument 
loses some of its point if it is meant that the rich by 
inheritance are to devote themselves, not to economic, but 
to general social functions, for which their means give 
them the opportunity. But then the grounds for admis- 
sion to the favored circle of those receiving income with- 
out labor are little related to functions when admitted. 
The argument may still mean much as applied to the 
inheritance of some means, but is no defence for the con- 
tinuance of very great fortunes. 

The amount of income from property received by 
inheritance is already highly concentrated and tends to 
become more so in geometrical ratio. Such income of 
the rich is practically all free income, that is, income not 
mortgaged for necessaries, hence it is practically all avail- 
able as means of further acquisition. The fact of the 
inheritance of fortunes, considered from a purely eco- 
nomic point of view, operates in the direction of further 
concentration of riches, and is reenforced as a factor 
in inequality in proportion as interest rates are low.^^ 



^The temptations of riches are a destructive factor; but narrow- 
ness is perhaps also a protection here, at least if the margin is small, 
that is, where the person is not very rich. 

*' The present essay treats of one phase of the larger problem of 
"distribution" so ably stated by Professor Cannan in his article on 
the Division of Income (Qu. Jr. Ec, XIX). Among other things he 
says : "Every one knows that in all, except the newest 'countries,' 
the inequality in the amounts of property which individuals have 
received by way of bequest and inheritance is by far the most potent 
cause of inequality in the actual distribution of property." This 
probably is as yet an overstatement for the United States, though 
not for England. We have elsewhere treated of the development of 
abstract property as conditional to the full force of this factor. 



130 American Economic Association [864 

§ 13. The Outlook for Small Savers and for the Small- 
Propertied Middle Class. 

There is a certain weakness in the argument for the 
importance of the rich as those performing the social 
function of accumulation. ^° While the sacrifice involved 
in saving is less great in proportion to size of income, the 
legitimate strength of the motive to save is, in a rough 
way, correspondingly less great, so that concentration 
would seem, a priori, to leave the effective tendency to 
save just where it was. This conclusion follows unless 
we assume that there is a limit to the possibility of per- 
sonal expenditure — which is true only of rational expen- 
diture. But the case is stronger against the effective 
functioning of the rich as savers. As between incomes 
equally large, the one salary or income from labor, the 
other income from property, the motive to save on the 
part of the former is much the greater, for, aside from 
the desire for income from property on its own account, 
there is need of accumulating a reserve or provision for 
the time when labor is no longer possible or when the 
head of the family is taken away. From equal amounts 
of income, distributed, one sum among numerous re- 
ceivers of moderate salaries, and the other among a few 
rich as the income from their property, there will, other 



Cannan further says : "As time goes on, the savings of each genera- 
tion of men must come to bear a smaller and smaller proportion to 
the property which has come down to them from previous genera- 
tions" (p. 366). This applies to savings out of income from personal 
effort, but not of necessity to savings out of income from property. 
It is because it results in greater separation between these two classes 
that a low interest rate in effect increases inequality. 

'"Cf. Giffen, 1883, p. 622. On the other side cf. Roscher, p. 618. 
Schmoller ventures a guess at the proportion of savings coming from 
different classes. He assigns two-fifths to small savers, and three- 
fifths to entrepreneurs, through their great gains, and to the rich. 
Grundriss, pp. 634-5. 



865] The Growth of Large Fortunes 131 

things equal, be a much larger amount of saving from 
among the salaried class. This is true, even allowing for 
deductions resulting from the use of accumulations as 
reserve. The comparison is obscured by the fact that 
other things are not equal. That is, those already pos- 
sessing considerable property are, by birth and habit, on 
the whole, likely to possess more of an instinct for pecu- 
niary accumulation. But even assuming a saving instinct 
among the propertied classes, conditions would appear to 
be more favorable to further accumulation if existing 
accumulations be held by a numerous small-propertied 
class, instead of being concentrated in the hands of a few 
rich. This is not a mere speculation. France is, of the 
progressive European nations, the land of the small- 
propertied class.^^ But France is also the land of thrift 
and of great total savings. The paying of the German 
indemnity was accomplished so quickly as to surprise the 
world. France — though with England given a great 
start — has not only for long been the great creditor and 
financial support of Russia, but is now the land which is 
looked to for supplying the world market with new 
capital. This adds noticeably to the importance of France 
in international politics.^^ This position of France as 

" Neymarck (Jr. Roy. Stat. Soc, 1896, pp. S40-2) presents some 
significant figures of ownership of investment paper in France. Such 
figures probably could not be matched by any other country. Of 
course allowance is to be made for division of risk through the in- 
vestor's owning small quantities of several different stocks. The 
French learned well the lesson of the Panama Canal experience. 
Division of risk, too, naturally increases with the inactivity of the 
investor, that is, with the increase of abstract property. A compara- 
tive study of statistics of estates of decedents in France and other 
countries, however, shows a marked difference in favor of France 
as regards concentration of property. See the writer's article men- 
tioned above. 

'^ This is believed in financial circles to be one reason for the yield- 
ing of Germany in the Algeciras Conference. Cf. N. Y. Evening 
Post, Mar. 10, 1906, also Apr. 28, 1906. 



132 American Economic Association [866 

the great moneyed nation is based upon the saving power 
of the salaried and small-propertied class. England has 
relatively lost ground, probably by very reason of her 
greater concentration of riches. This development of 
small saving has of course had to wait for the modern 
organization of investment institutions. The anxiety 
with which our American financiers are coming to culti- 
vate and humor the "outside public" of small investors 
appears to indicate a similar tendency to a shift in the 
character of the class of savers in this country.^^ The 
function of the rich as the accumulators of capital appears 
to be a thing of the past.^^ 

It has been argued, in considering the development of 
abstract property, that it has thus far been, on the whole, 
favorable to the concentration of riches. The evidence 
supports this view. It has also been shown, however, that 
it is intrinsically just as possible for abstract property to 
be the means of equalization of ownership.^^ Education 



'^ "The industrial movement must stand or fall by the proposition 
whether industrials are or are not to become an investment for the 
small capitalist." James B. Dill (p. no) in an address on Industrials 
as Investments for Small Capital. 

^* There are those who write against the "fallacy of saving," argu- 
ing that the older economists were mistaken in extolling parsimony 
as a social service. This difference of opinion seems to be due to a 
difference in point of view resulting from the growth of abstract 
property. Could not American agriculturists well expend billions 
in improving their land and appliances? But they need first to pay 
something on the mortgages. Better streets and roads, and other 
public works, would pay indirectly if not financially. Expenditures 
for permanent improvements could economically be made in all lines 
of production and consumption. But if we think only of abstract 
pecuniary income, it is true that too rapid accumulation and the too 
anxious seeking of profitable investments mean disturbance of busi- 
ness conditions. 

^^ "In my opinion the greater distribution of which I am speaking 
was the result of limited liability." Goschen, 1887, p. 596. He 
refers to the decentralization of the holding of the stocks of certain 
companies as they become older. Age itself must normally spread 



86;] The Growth of Large Fortunes I33 

in the qualities of paper property has until recently been 
lacking-. Such property still needs adaptation to the 
demands of small investors. But these requirements 
once met, the ultimate result may be greater equality 
in abstract-property incomes. A small-propertied class, 
accustomed to personal sacrifices, lacking personal initia- 
tive, and valuing security above all else, may in time buy 
out many of the larger holders of abstract property. They 
can outbid both the spendthrift rich and the active entre- 
preneur class. More stable conditions of production will 
favor them. The fall in the rate of interest is probably in 
part due to greater and greater elimination of irregularity 
and risk; this again is partly a result of the demands of 
abstract-property seekers. A condition to a supplanting 
of the rich by small savers is that the abstract-property 
character of securities attain to its highest development, 
that is, that the income be fixed and the risk be, so far as 
humanly possible, eliminated.^*^ But it is the tendency of 
present-day methods of organization to expand just this 
type of security. Savings-banks and trust companies 
have developed as the agents of the inactive investor, giv- 
ing those seeking abstract-property income the benefit of 
their expert knowledge of investments and the advantage 
of division of risk. The recent and rapid growth of the 
trust company in the United States is especially signi- 
ficant. So the ultimate result of the abstract-property 
development may be to equalize the ownership of prop- 
erty. As for the few functionless hereditary rich who 
will still remain, their relation to the social order will then 

somewhat the shares of a company by process of partial sales, aside 
from the direct incentive to such distribution for the sake of virtual 
insurance by division of risk. 

™ Bonds are more perfect abstract property than stocks. It would 
be interesting to know whether there is any difference in the degree 
of concentration of ownership of these two classes of securities. 



134 American Economic Association [868 

be so clearly nil, that governmental action may be ex- 
pected to divide the property of the very rich on their 
decease, thus reversing the policy of primogeniture 
adopted by feudalism. Abstract property is a middle- 
class opportunity, though it may be doubted whether it 
is so good a middle-class opportunity, being non-func- 
tional, as that provided by economic conditions which ^ 
favor the small-sized, but independent, form of produc- 
tive enterprise. American farmers are a wealth-owning 
and wealth-administering class that will probably con- 
tinue to dominate in the rural districts. It is the small 
urban "bourgeoisie" that have suffered as a result of the 
Industrial Revolution. But the evolution of abstract 
property may finally cure that condition of which it has 
so far been so largely the cause. 

Property in life insurance, which has developed so 
greatly in the last quarter-century, is important as a sup- 
port of the middle class.^''^ The millions of accumulations 
form, in effect, small properties available when most 
needed. The numbers holding life insurance we should 
expect to increase as the salaried class grows and takes 
the place of the older propertied middle class, though 
business men also are likely to insure heavily.^^ 

"Life insurance is a mode of saving and providing a reserve which 
we might expect to be a favorite resort of the salaried, and to some 
extent of the better wage-earning, class. Rising from an unimpor- 
tant sum in 1850, the amount of policies in force at various dates 
was (U. S. Statist. Abstr., 1905, p. 123) : 

1880 $1,584,717,001 1894 $5,566,166,664 

1884 2,095,810,106 1899 7,774,280,005 

1889 3,657,669,776 1904 12,547,937,441 

Of course the actual present value of such savings would be better 
represented by the assets of the companies. These were : 

1880 $452,680,651 1894 $1,073,156,679 

1884 519,786,617 1899 1,595,208,408 

1889 720,237,64s 1904 2,498,960,968 

** The increase in the number of insured can hardly be an indica- 



869] The Growth of Large Fortunes I35 

Savings institutions are supposed to be for the benefit 
of the "working classes", but are very largely patronized 
by the small-propertied class. In either case the increase 
of their deposits is a good sign, even if that is largely 
due to the fact that they are a comparatively unsatis- 
factory resource of those who would, in other times, have 
been directly small owners and administrators of pro- 
ductive wealth. They open to all the door to the pos- 
session of abstract property, an important advantage es- 
pecially for the city proletariat.^^ 

tion of the increase of the propertied class, as Goschen (1887, p. 598) 
implies, but rather of the tendency to a salaried class in their stead. 
As regards mere numbers, too, there has been a great development 
of so-called industrial insurance in England and America. 

"'Following are statistics of savings banks, etc., at intervals of 
five years, since 1850 (Statistical Abstr. of the U. S. for 190S, pp. 
634-5) •■ 

Deposits in No. of de- Deposits in 

savings banks positors, loan and trust cos. 

Date (thous. dols.) (in thousands) (thous. dols.) 

1850 $43,431 251 

i8ss 84,290 432 

i860 149,278 694 

1865 242,619 980 

1870 549,874 163I 

1875 924,037 2360 $85,025 

1880 819,107 2336 90,008 

1885 1,095,172 3071 188,417 

1890 1,550,024 4259 336,456 

1895 1,844,358 4876 546,653 

1900 2,389,720 6107 1,028,232 

1905 3,093,077 7696 1,980,857 

The increase in the amount of deposits in such institutions of course 
does not mean quite a corresponding increase in savings. It is 
necessary that the people acquire the habit of using such institutions. 
They will also use them more in proportion as the opportunity to 
receive direct income from concrete productive wealth is relatively 
less. For this reason, too, deposits in savings banks are not wholly, 
or even mainly, the savings of the people, for the middle class has 
probably been more and more forced into such lines of investment. 



136 American Economic Association [870 

In addition to the possibility of a renewal of life for 
the small-propertied class, and also in part as a means to 

(Pres. Wright's opinion — based upon certain Massachusetts Labor 
Reports — is that one-half demonstrably belongs to wage-earners. 
Atlantic Monthly, vol. 80, p. 303, footnote.) But it is certainly not 
the rich that put their property here. The loan and trust company, 
on the other hand, may act to a considerable extent as an investing 
agent of the rich. As regards the number of savings-bank depos- 
itors, they are of course not all heads of families, but rather more 
nearly — if one must choose between extreme assumptions — all the 
grown-up or partly grown-up members of families that deposit at all. 
Many of the well-to-do, also, are known to deposit in several banks. 

The following comparison of the United States with other coun- 
tries as regards savings institutions is significant. "The total 
deposits in all the savings banks of the world, according to latest 
oiificial information received by the Department of Commerce and 
Labor through its Bureau of Statistics, amounted to over loYz 
billion dollars, contributed by 82,640,000 depositors. Of this total the 
United States shows aggregate deposits of $3,060,179,000, credited to 
7>30S,ooo depositors. As the figures used in arriving at the grand 
totals cover about one-half of the population of the world, viz., over 
770 millions, it appears that the United States, with less than g]^ 
per cent, of the total population considered, contributes over 29 per 
cent, of the total savings deposits recorded. Of the total number of 
depositors, or rather deposit accounts, the share of the United States 
is somewhat less than 9 per cent., while the average deposit per 
account is more than four times, and the average savings per inhabi- 
tant more than three and one-half times the corresponding averages 
for the rest of the world." (Comptroller's Rpt. 1904, vol. I, p. 38). 

The building and loan association, a form of lower middle and 
working class investment characteristic of the United States, has 
been in a stationary or declining state in the most recent period. 
Assets at recent dates (Stat. Abstr. U. S., 1905, p. 122) were: 

1893 $528,852,885 

1898 649,423,380 

1903 599,550,855 

This is not necessarily a bad symptom, however, smce it is probably 
due to the competition of better forms of investment. 

It is significant of the power of small savers that, even in a country 
which presents so high a degree of concentration as the United 
Kingdom, they appear to be making noticeable gains at a critical 
point, that is, in the ownership of real estate. Giffen says (1883, p. 
617) : "Out of 190 million pounds assessed under Schedule A in 



871] The Grozvth of Large Fortunes 1^7 

such reinvigoration, there is the prospect of a continu- 
ance of the expansion of the high-salaried or salaried, 
as distinguished from the wage-earning class. ^^° The 
members of this class are chiefly officials of corporations. 



1881-2, the sum of 11,359,000 pounds was exempted from duty as 
being the income of people whose whole income from all sources was 
under 150 pounds a year." This schedule includes only capitalistic 
income, described as "from the ownership of lands, houses, etc." 
The annual value of property entered under Schedule A in 1901-2 
and relieved from duty on the ground that the total incomes of the 
owners from all sources did not exceed 160 pounds was 25,806,833 
pounds, out of a total gross assessment under Schedule A of 
238,231,937 pounds (Com. Inland Rev., p. 181). Five and nine-tenths 
per cent, of the total income of this kind was exempt at the earlier 
date, and 10.8 per cent, at the later. 

Allowance must be made, it is true, for the change in the minimum 
taxable. But a change from 150 to 160 pounds is an increase of only 
one-fifteenth. Suppose the incomes added to the exempt list aver- 
aged 155 pounds and those that would have been exempt under the 
previous limit averaged 75 pounds. Since the incomes not amounting 
to a subsistence minimum are few anyway, and still fewer among 
those possessing some income from property, this latter assumed 
average is absurdly low, and therefore favorable to attributing much 
of the change to the added class. And suppose the numbers in the 
two classes proportioned to their range. This is also rather favor- 
able to an unduly good showing for the added class, since the 
pyramid of incomes tapers decidedly below this point. Then the 
added one-fifteenth of exempt cases would mean an addition to the 
amount of income exempt, not of one-fifteenth or 6.7 per cent., but 
of (15s X i)/(75 X 15) or 13.8 per cent. This is certainly inade- 
quate to account for very nearly a doubling of the amount exempted 
on the ground of its receipt by persons with small incomes. In 
twenty years there has clearly been a very great gain in the owner- 
ship of real estate by people of small incomes in the United Kingdom. 

Altogether, the statistics cited justify the conclusion that there has 
recently been, in the United States and elsewhere, an important 
increase in the number of small owners of income-yielding property, 
especially of abstract property. 

"" We may analyze United States statistics of occupations in a way 
to throw light on this question of the growth of the salaried class. 
Excluding the agricultural group altogether from the comparison, 
and reckoning as representatives of the salaried class or better {i. e., 
entrepreneurs) : Bankers and brokers. Officials of banks and com- 



138 American Economic Association [872 

This tendency is hailed by some as the development of 
a new sort of middle class which will be an adequate sub- 

panies, Manufacturers and officials of manufacturing companies, etc., 
Merchants and dealers (wholesale and retail), and Persons in pro- 
fessional service, we find the per cent, these constitute of the total in 
non-agricultural gainful occupations. (The basal numbers for these 
ratios were obtained from the Special Report on Occupations, pp. 
1-lii.) The percentages for successive census years are: 

1870 12.3 1890 13.2 

1880 12.3 1900 13.3 

Excluding teachers from the comparison, the per cents, are 10.6, 
10.2, ii.o, 1 1.2. There is thus indicated, except during the first 
decade included, a steady gain of this group upon others, which is 
doubtless due to the growth of the salaried class. The demand for 
higher commercial and engineering education is a result and symp- 
tom of the growth of that class. If we include farmers, planters, 
and overseers, and reckon the per cent, of these to the total in 
gainful occupations, the showing is different for the last decade. 
But this can be explained by the fact that agriculture, with its high 
proportion of independent entrepreneurs, is relatively losing ground. 
The salaried class is a phase of commercial and industrial, rather 
than of agricultural, development. 

Owing to a change in the classification, it is not possible to com- 
pare the ratio of "salaried officials, clerks, etc.," to "wage-earners" 
as reported in the Census of Manufactures of 1890 and 1900. Such 
a comparison with the Census of 1900, not only as regards numbers 
but also as regards average income of salaried officials and wage- 
earners respectively, is possible for the Census of Manufactures of 
1905. In the five year period, salaried officials, clerks, etc., increased 
in number 42.7 per cent., while the number of wage-earners increased 
but 16.0 per cent. (Bui. 57, p. 9). The average salary increased abso- 
lutely more, but relatively less, than the average wage. 

There is here a possibility of erroneous inference. As the corpora- 
tion progressively displaces other forms of business organization, its 
salaried class takes the place of independent entrepreneurs and small 
proprietors. There is thus an increase of the salaried class in pro- 
portion to the total occupied. This increase, however, is not a net 
gain for the "middle" class, but is primarily compensatory, though 
perhaps also more than that. The increase of those occupied in 
certain kinds of professional service indicates that it is more than 
compensatory. It appears, too, that the salaried class is gaining 
considerably relative to the wage-earning class. 



8/3] The Growth of Large Fortunes i39 

stitute for the propertied middle class. It certainly is a 
gratifying tendency; but the salaried class is not, as such, 

For the United Kingdom one index of the increase of the salaried 
class is the gross income assessed under Schedule E of the income 
tax, that is, "salaries of government, corporation, and public company- 
officials." The gross income assessed under this head in the year 
1901-2 was 79,151,425 pounds, an increase of 53.4 per cent, over the 
year 1892-3, and of 5.0 per cent, over the year 1900-01. (Com. Inland 
Rev., p. 205.) The number of assessments in 1892-3 was 246,789, and 
in 1901-2 it was 342,259, an increase of 95,470, or about 39 per cent. 
The conversion of private concerns into public companies of course 
constantly tends to increase this class at the expense of the schedule 
for incomes from "businesses, concerns, professions, employments", 
etc., so that the increase is a compensatory, and not a net, gain for 
the middle class. 

In the German statistics of occupations, the class of Angestellte 
corresponds to our "salaried officials, clerks, etc." The number of 
these at the dates given was as follows (the figures given in Zahn, 
Conrad II, p. 604) : 

Absolute Per cent, in- 
1882 189s increase crease 

Landwirtschaft . . . 66,644 96,173 29,529 44 

Industrie 99,076 263,745 164,669 166 

Handel 141,548 261,907 120,359 85 

Uberhaupt 307,268 621,825 314,577 102 

The increase in the total number of persons occupied was 17.80 per 
cent. Entrepreneurs employing assistants increased, in the period 
from 1882 to 1895, 1.3 per cent, laborers 62.6 per cent, officials 118.9 
per cent. (Schmoller, Grundriss, p. 436). This introduction of busi- 
ness officials between proprietors and wage-earners is a result of 
large-scale industry, and indicates the growth of a salaried class, but 
also the displacement of a small-entrepreneur class. 

The French classification of occupations does not lend itself to 
convenient comparison of like nature. 

The general conclusion from these figures is obvious. The salaried 
class is of increasing importance under the modern regime. This 
increase has its highly encouraging aspect. Modern industry is 
directly creating another middle class in place of the one it tends to 
destroy, though we cannot say how far the gain is full compensation 
for the loss. This gain, with the ulterior possibilities which it pre- 
sents, is one of the most important progressive features of the 
situation. 



140 American Economic Association [§74 

a true middle class between rich and propertyless. A high 
salary is not an equivalent substitute for an equal income 
from property, for it is not permanent. And the bridging 
of the gap between the large-propertied and the high- 
salaried class becomes increasingly difficult as the rate 
of interest falls. Of course a high salary may facilitate 
the accumulation of a small property. The salaried and 
the small-propertied class together, by their savings, prob- 
ably afford the greatest demand for secure abstract prop- 
ert3^ The final outcome of this situation is likely to be 
favorable to the middle class. 



Summary. 

It has been the aim of this chapter to show how the 
economic developments of recent times have promoted 
the growth of such forms and kinds of production and 
exchange as, on the whole, are favorable to the growth 
of large fortunes. These tendencies have been particu- 
larly strong in the United States. Agriculture, which 
remains a great field of small-scale production, has flour- 
ished, but at nothing like the rate of manufactures and 
mineral industries. And against the ownership of agri- 
cultural land there has probably been a considerable 
increase of comparatively centralized mortgage debt. 
Meanwhile the urban and industrial population, where 
economic inequality flourishes, has been growing at a 
rapid rate. Large-scale production and the corporate 
organization of business has been increasingly dominant 
in everything but agriculture. The greatest increase in 
recent production in the United States has been in lines 
where large-scale production, or economico-technical con- 
centration of wealth, has prevailed and is becoming more 
and more dominant. Manufactures are conspicuously 



875] The Grozvth of Large Fortunes 141 

and increasingly of this character. Mining is even more 
completely an industry of large-scale production. Large- 
scale production increases the dominance of the capitalist, 
adopts the corporate form, and extends the regimental 
organization of labor. These developments have pro- 
ceeded at an accelerating rate. Ours is a highly dynamic 
age. In such a soil the commercial and speculative point 
of view, with corresponding gains from value-increase 
in real estate, in securities, and so forth, has bulked larger 
than ever before. Everything has been coming the way 
of the business man. Altogether these developments have 
enormously favored the growth of capital and of large 
fortunes. 



NOTE TO CHAPTER III. 
An Analysis of Lists of Millionaires (compiled by the N. Y. 
Tribune and the N. Y. World) in the United States. 
In 1892 the New York Tribune published, as a supplement 
{Tribune Monthly, June, 1892, "American Millionaires"), a list of 
American millionaires, which has been made considerable use of by 
statisticians. The editor describes it as "a substantially complete 
and correct catalogue of the persons in the United States who are 
reputed, by their friends, and neighbors, and by well-informed 
business men in their respective communities, to be worth a million 
or more of property, or in very close proximity to a million" (p. 4). 
He further says the list includes rather too many than too few 
names. As regards the number of millionaires indicated, it is per- 
haps not very reliable, and the error is probably one of exaggeration. 
But errors of this kind do not affect the validity of conclusions 
drawn from the following analysis. The source from which a 
fortune is derived is much better known to the public than its 
amount. A calculation and comparison of the relative importance 
of the various sources of riches, furthermore, is not appreciably 
affected by some indefiniteness of the information as to whether 
each particular fortune is of such a size as to come within the line 
bounding the class for which the comparison is made — provided 
there is no bias in the compiler, such that he seeks to increase the 
importance of this or that source. In view of the purpose of the 
Tribune list, there may be a slight bias in the direction of mini- 



142 American Economic Association [876 

mizing the importance of protected industries as sources of great 
fortunes. But the work appears to have been carefully and honestly 
done. 

In the World Almanac for 1902 there is also a list of millionaires, 
but much less carefully worked-up with reference to the origin of 
the fortune. Indeed, the single word given to the description of each 
millionaire appears to be what he would report as his occupation, 
and thus the knowledge of the source of his fortune is not a datum, 
but only a generally valid inference. Even if the occupation is 
rather the effect than the cause of the possession of a large fortune, 
by inheritance perhaps, — and it is doubtless to some degree both 
effect and cause — the affinity between the occupation and the pos- 
session of riches remains of much significance. 

A summary of the relative weight of the sources of large for- 
tunes, as indicated by the Tribune list, together with the proportion 
of males occupied in corresponding main classes of occupations, 
follows : 

Males in gain- 
Tribune list of ful occupations 
Am. millionaires in tqco 

Per cent. Per cent. 

Per cent, for Dis- 

No. of all occpn. No. trbn. 

I. Agriculture and grazing 84 2.1 2.4 7,787,539 41.4 

II. Professional service y^ i-8 2.1 632,646 3.3 

III. Domestic and personal ser- 

vice 24 0.6 0.7 2,553, 161 13-6 

IV. Trade and transportation. . .1752 43.3 49.9 3,157,600 16.8 
V. Manufacturing and mechan- 
ical pursuits 1140 28.1 32.5 3,972,132 21. 1 

VI. Mineral industries, forests. . 436 10.8 12.4 718.012 3.8 
VII. Various sources combined, 

or source not stated 538 13.3 

Totals 4047 18,821,090 

(The figures for occupations are from the 12th Census Abstract, 
p. 24, with the groups slightly rearranged as indicated in the fol- 
lowing : 

I. "Agricultural pursuits," less lumbermen and raftsmen and 
wood-choppers (to VI). II. As in Census figures — includes 
showmen and some patents. III. As in Census — includes hotel- 
keepers. IV. "Trade and transportation" as in Census, plus 
fishermen, and oystermen. V. "Manufacturing and mechanical 
pursuits," less iron and steel workers, oil-well and oil-works 
employees, saw and planing mill employees, marble and stone- 
cutters (all to VI), fishermen and oystermen (to IV), and 



^77^ The Growth of Large Fortunes 143 

miners and quarrymen (to VI). VI. As taken out from the 
above. VII. Relates to millionaires but not to Census of Occu- 
pations. Includes : gift, where not reducible to others, real 
estate, "capitalist" not further defined (especially in the World 
list), estates undergoing settlement, etc.). 
In detail the Tribune list's classification, rearranged, is as follows : 

I. Total 84 

Cattle-raising in the West and lands, mainly 47 

Fine stock-raising and fortunate investments in lands 

and securities 3 

Wool-growing in Ohio, and lands i 

Plantations, farming, and land 15 

Cotton raising in the South 4 

Sugar plantations in the South 3 

Tobacco growing in the South, and lands 3 

Plantations in W. Indies and S. America, mainly 6 

(One-half) seeds and nursery business, mainly 2 

II. Total y2 

Law practice and investment of profits in real estate 

and securities 65 

Medical practice and real estate investments i 

Royalties on patents 3 

Show and circus business, with investment of profits in 

real estate, securities, etc 3 

Made in Tweed Ring, N. Y. City i 

III. Total 24 

Hotel and restaurant business with real estate invest- 
ments 24 

IV. Total 1752 

Merchandizing mainly, with, in great majority of cases, 

the investment of profits in real estate, banks, and 

securities generally 986 

Banking and the investment of profits in real estate 

and securities, mainly 294 

Brokerage business and stocks 56 

Insurance business, mainly 6 

Grain elevator, storage warehouses, and wharf business 17 
Railroads, development, consolidation and manage- 
ment of 186 

Telegraph and telephone development 12 

Express business ; pony express, mail contracts with 

other business 20 

Steamboating on the rivers and in the harbors 20 



144 American Economic Association [878 

Deep sea shipping, in some cases combined with for- 
eign trade 75 

Whaling, deep sea shipping and ocean trade 4 

Coasting and lake shipping, mainly 31 

Other mercantile enterprises 8 

(One-half) seeds and nursery business, mainly 2 

(One-half) local enterprises, gas works, water-works, 

street railroads, ferries, etc 35 

V. Total 1 140 

Manufacturing mainly, but in many cases with invest- 
ments in real estate, banking, etc 619 

Contracting and building railroads, streets and public 
and private works generally; asphalt street pave- 
ments 84 

Tanning and leather business 49 

Distilling, mainly 32 

Brewing and real estate, mainly; malting 81 

Packing and provisions 34 

Sugar refining, mainly 29 

Flour milling 16 

Publishing — news and story papers ; books with gen- 
eral printing in some cases; music; lithographing... 58 

Shipbuilding and repairing g 

Making special patented and proprietary articles 93 

Other manufacturing 7 

(One-half) local enterprises, gas-works, etc 35 

VI. Total 436 

Coal, iron, zinc, lead, copper or quicksilver mines 113 

Silver and gold mines 73 

Oil producing, refining and transportation 72 

Smelting and refining metals 6 

Marble quarries, but with other investments 2 

Other mining 2 

Saw mills and lumber, sometimes with other invest- 
ments 138 

Pine lands and sale of logs 19 

Dealing in timber and mineral lands li 

VII. Total 538 

Real estate, advance in value with growth of popula- 
tion, and improvement of 468 

Loaning money and real estate 9 

Miscellaneous investments 6 

By inheritance and gift, original sources of the fortune 



c 



879] The Growth of Large Fortunes 145 

unknown 34 

Origin of fortune entirely unknown 21 

Grand total 4047 

The most striking fact in the table is, without doubt, how very- 
unproductive is the soil of agriculture for the growth of millionaires. 
One hundred years ago the United States was almost exclusively an 
agricultural country. In the last generation or so the salient facts 
in the economic history of the counvry have been the growth of 
manufacturing, transportation, and mining — and of millionaires. But 
we need to look behind the face of the returns in the Tribune list of 
84 millionaires for agriculture and grazing. Of these 84 full 47 are 
not representative of agriculture. They made their fortunes by 
"cattle-raising in the West," that is, by exploiting the national 
domain. The other "representatives" of the American farmer in the 
list should also be noted. 

It is significant that, of the 7^, men primarily engaged in profes- 
sional service, or so classed, 65 are lawyers, presumably corporation 
lawyers. But of course they have invested in real estate and securi- 
ties, that is, have been speculators. 

In the World list the millionaires are classed as follows : 

Males in gain- 
World list of ful occupations 
Am. millionaires in igoo 

Percent. Percent. 

Per cent, for dis- 

No. of all occpn. No. tribution 

I. Agriculture and grazing 31 i.o 2.0 9,296,547 39.1 

II. Professional service 72 2.^ 4.5 828,163 3.5 

III. Domestic and personal ser- 

vice 7 0.2 0.4 3,485,208 14.7 

IV. Trade and transportation. . . 700 23.0 44.0 4,331,332 18.2 
V. Manufacturing and mechan- 
ical pursuits 583 19.2 36.7 4,615,190 19.4 

VI. Mineral industries, forests. . 197 6.5 12.4 1,197,765 5.1 
VII. Occupation not classified 
(several interests), or not 
stated 14SS 47-8 

Totals 3045 23,754,205 

The World's list in some detail is as follows : 

I. Total 31 

Farmer, breeder, planter 8 

Cattle, live-stock 23 

II. Total 72 

Lawyer 44 



146 American Economic Association [880 

Physician 2 

Politician or government official 6 

Author I 

Inventor I 

U. S. Senate 18 

III. Total 7 

Hotel or restaurant keeper 7 

IV. Total 700 

Merchant 295 

Banker 271 

Broker 38 

Financier 28 

Insurance Co 3 

Railroads 44 

Street railways lO 

Telegraph 3 

(One-half) hardware and ice 8 

V. Total 583 

Manufacturer 313 

Manufacturer, iron and steel 50 

" leather 33 

" tobacco 25 

" textiles 54 

Gas Co 4 

Publisher 26 

Distiller 13 

Brewer 57 

(One-half) hardware and ice 8 

VI. Total 197 

Coal 30 

Mines of various sorts 47 

Oil producing and refining 28 

Lumber, pine lands 92 

VII. Total 1455 

Capitalist 837 

Director of corporations 134 

Realty 148 

No occupation given 336 

Estate undergoing settlement 516 

Grand total excluding "estates" 3045 

Grand total for entire list 3561 



88 1] The Growth of Large Fortunes i47 

One of the significant facts that stands out in the statement of 
occupations of millionaires in this list is the prominence of abstract- 
property interests among these very rich men. This makes it less 
valuable for certain purposes than the former list, where the effort 
was made specifically to bring the origins of the fortunes into connec- 
tion with some concrete and definite line of production. But it is all 
the more significant in another way. The "capitalist," in business 
parlance as in economic theory, is no longer an entrepreneur, 
whether as manufacturer or in some other definite line. An entre- 
preneur engaged in a definite line of production would doubtless give 
that as his occupation. The "capitalist" is presumably interested in 
various corporations. The numerousness of "financiers" and of 
"directors of corporations" is of like significance. The banker is an 
earlier result of the same process of differentiation, and also rather 
a curator of abstract property than an administrator of concrete 
productive enterprise. 

It is to be noted, in both lists, how often "real estate" and invest- 
ments help to account for the origin of fortunes. That is, specula- 
tion and mere commercial shrewdness have played their part in most 
cases. The "unearned increment" is much more susceptible of rapid 
agglomeration than earnings. 

Not only should numbers be taken account of in the above figures, 
but also how many times certain men are millionaires. Some are a 
hundred times that. This often has its effect in making several heirs 
and relatives millionaires, where the fortune was made some time 
ago, but is still given only a small part of the weight that it should 
have. In what direction allowance for this factor would throw the 
indication of the comparisons is shown by the mention of the names 
of some of our multi-millionaires: Rockefeller (oil), Carnegie 
(steel), Astors (urban realty), Vanderbilts (railways), Goulds (rail- 
ways), and so on. 



CHAPTER IV 

CERTAIN PECULIARITIES OF ECONOMIC HISTORY AND CON- 
DITIONS IN THE UNITED STATES. 

§ I. The Background 

The United States represents nearly all the distinc- 
tively modern economic tendencies in their highest degree. 
If modern tendencies are such as favor the growth of 
large fortunes, we should expect the United States to be 
more fertile in the production of these than any other 
country. This is fundamentally what accounts for the 
fact that the United States, once the land of economic 
equality, is now known as the land of the multimillionaire. 

Of conditions at the beginning of our national life we 
could scarcely find a more competent observer than Ben- 
jamin Franklin. He says: "Whoever has travelled 
through the various parts of Europe and observed how 
small is the proportion of the people in affluence or easy 
circumstances there, compared with those in poverty and 
misery; the few rich and haughty landlords, the multi- 
tude of poor, abject, and rack'd tenants, and the half- 
paid and half-starved ragged laborers; and views here the 
happy mediocrity, that so generally prevails throughout 
these States, where the cultivator works for himself, 
and supports his family in decent plenty, will, methinks, 
see abundant reason to bless Divine Providence for the 
evident and great difference in our favour, and be con- 
vinced that no nation that is known to us enjoys a greater 
share of human felicity."^ Elsewhere he says : "Though 

^Franklin, Writings, Vol. X, p. 120 (1784)- 
148 [882 



883] The Growth of Large Fortunes 149 

there are in that country [of the United States] few- 
people so miserable as the poor of Europe, there are 
also very few that in Europe would be called rich: it is 
rather a general happy mediocrity that prevails. There 
are few great proprietors of the soil, and few tenants; 
most people cultivate their own lands, or follow some 
handicraft or merchandise; very few [are] rich enough 
to live idly upon their rents or incomes ; or to pay the high 
prices given in Europe for Paintings, Statues, Archi- 
tecture and other works of Art, that are more curious 
than useful".^ This last touch is not the least significant 
point in the quotation. 

For ante-helium conditions let De Tocqueville be our 
reporter. In several places his remarks show how much 
impressed he was with the general equality of conditions 
prevailing among the people. "Men are there seen on a 
greater equality in point of fortune and intellect, or, in 
other words, more equal in their strength than in any 
other country of the world, or in any age of which 
history has preserved the remembrance."^ "The number 
of large fortunes [in the United States] is small, and 
capital is still scarce."^ 

The following is from a contemporary of ours : "Sixty 
years ago there were no great fortunes in America, few 
large fortunes, and no poverty. Now there is some 
poverty (though only in a few places can it be called 
pauperism), many large fortunes, and a greater number 
of gigantic fortunes than in any other country of the 
world. ""^ Continuing, Mr. Bryce says : "The number of 
these [large fortunes] seems likely to go on increasing, 
for they are due not merely to the sudden development of 



= Ibid., vol. VIII, p. 604. 

' I, p. 67. 

*II, p. 191. 

" Bryce, Am. Com., II, p. 745. 



150 American Economic Association [884 

the West, with the chances of making vast sums by land 
speculation or in railway construction, but to the field for 
doing business on a great scale, which the size of the 
country presents". And :^ "While many great fortunes 
will continue to be made, they will be less easily and 
quickly spent than in Europe, and one may surmise that 
the quality of material conditions, almost universal in the 
last [i8th] century, still general sixty years ago, will 
more and more diminish by the growth of a very rich class 
at one end of the line, and of a very poor class at the other 
end of the line". 

A review of certain peculiarities of conditions in the 
United States will round out the argument that explains 
how this great change has come about. Europe has a 
historic past favorable to economic inequality, and still 
mainly determining its land ownership, while for the 
United States the contrary is true. The contrast with our 
past may account in part for the extent of our reputa- 
tion as a producer of millionaires. 

§ 2. Development of Great Economic Possibilities. 

The rapidity and magnitude of the development of 
natural resources in the United States are unexampled. 
This fact is most striking as exhibited in our mineral 
industries, whose part in our large fortunes is very great. 
Grants from the public domain under the Homestead Act 
have had an opposite tendency. But the middle class of 
farmers cannot always be recruited from this source.'' 
And the public domains, also, figure largely in the pro- 
duction of millionaires — not without the taint of timber 
and cattle frauds. Pertinent also is the fact that grants 



^ Ibid., p. 746. 

^ "The eldest son generally takes the land, and the others go and 
seek their fortune in their desert." De Toqueville, I, 375. 



885] The Growth of Large Fortunes iS^ 

of public lands to railroads have exceeded the amount 
acquired by individuals under the Homestead Act.^ 

Despite expansion over the prairie, there has been a 
continued shifting of the American population cityward, 
where property is less equally distributed. This is by no 
means peculiar to the United States, but it is a great 
change from the past,^ and a part of the process of mak- 
ing us modern and assimilating our condition to that of 
Europe. The United States is losing its character as an 
agricultural country. But in the great cities develops the 
contrast, and the conflict, of plutocracy and proletariat. ^^ 
In the Middle Ages the city developed the middle class 
of handicraftsmen and merchants, counter to feudalism. 
But now the conditions of production favor a country 

middle class. 

Monopolistic possibilities in scarce natural factors, such 
as oil, anthracite, and iron, have been a basis of great 
accumulations in the United States. Such possibilities 
have not been equalled in other countries. The occupa- 
tion of partial monopolies in transportation, such as 
steam and electric roads, the telegraph and telephone, has 
been left to private individuals in this country to a degree 
that does not hold for any other. England, though also 

"^atistics to be found in the Rpt. of the Public Lands Commis- 
sion, p. 361, Senate Doc. No. 189, 58th Cong., 3rd Session. 

•"Consider the great proportion of industrious frugal farmers 
inhabiting the interior part of these American States, and of whom 
the body of our nation consists; and judge, whether it is probable 
the luxury of our seaports can be sufficient to ruin such a country. 
(Franklin, Writings, X, p. 121.) "For one artisan or merchant, I 
suppose we have at least one hundred farmers." (Same, p. ii7-)_ 

""I look upon the size of certain American cities, and especially 
on the nature of their population, as a real danger which threatens 
the future security of the democratic republics of the New World, 
and I venture to predict that they will perish from this circumstance 
unless," etc. De Toqueville, I, 37°. 



152 American Economic Association [886 

a comparatively laissez faire country, owns her telegraph 
system, and her municipalities, most of them, own street- 
railways and other public-service plants. Some measure 
of the possibilities of capitalization of such opportunities 
is furnished by American railway and public-service cor- 
porations. Railroads, by their discriminations, have also 
been able to confer monopolistic advantages on favored 
shippers. 

Nowhere has industrialization and the development of 
large-scale production proceeded at a more rapid rate 
than in the United States. The growth of manufac- 
tures — as we to-day understand the term, that is, not 
hand-trades^^ — in the United States has been entirely a 
development of the last century, and chiefly of the period 
since the Civil War. Our tariff policy has aided this 
development of manufactures and therefore has pro- 
moted the production of millionaires. In the case of 
some protected articles the personal effect of the policy 
has probably been altogether too direct. -^^ The develop- 
ment of the "trust" in America as nowhere else is symp- 
tomatic of the general character of tendencies in produc- 
tion here towards a greater centralization than elsewhere, 
which affects not only the size of the business unit but 
also the size of fortunes. There is probably a consider- 
ably greater development of business corporations in the 
United States than in France or Germany, though per- 
haps not more than in England. 

The rapidity and magnitude of our development of 
natural resources and of industrial possibilities have pre- 
pared a fertile field for speculation, pure or mixed, in real 
estate, raw materials, and stocks. 



" In Hamilton's Report on Manufactures, household and family 
or farm manufactures are much in evidence "besides regular trades." 
Cf. Works, vol. Ill, p. 349. 

" Taussig, Tariff History, esp. the ch. beginning at p. 194. 



88;] The Growth of Large Fortunes i53 

§ 3. Socio-Economic Characteristics of Americans. 

There are certain combined social and economic pecu- 
liarities of the American people which cannot be left out 
of account in considering the causes of large fortunes. 
The American people are probably less inclined to 
make sacrifices in order to accumulate property, or even 
a reserve for sickness or age, than people of other nations. 
The American is not frugal. He has not known poverty 
well enough to make him so. The very self-reliance of 
the American workman, and the high wages that have 
been largely the cause of that self-reliance, make him 
attach less importance to income from property. It is 
not so much needed to supplement income from labor and 
is not considered so much better. The prestige of income 
from property is less felt here and there is more respect 
for labor than in Europe. 

As a result of their greater welfare, American con- 
sumers are comparatively inattentive to small gains and 
to slight differences in prices. The waste of the Amer- 
ican household, as compared with the French, is a stock 
illustration of this difference. The American tolerance 
of indirect taxation— a point about which foreign gov- 
ernments envy ours— is perhaps chiefly due to this same 
cause. The customary American "nickel" basis for street- 
car fares is partly due to our system of coins— as com- 
pared with the typical lo-pfennig fare of Germany— but 
it is also due to the American tolerance of a compara- 
tively heavy charge for a necessary daily service. Thus is 
promoted the increase of franchise values and of riches. 
Consumption does not fall off so markedly in America 
as a result of a slight advance in price, say of oil or beef. 
Large-scale production, requiring demand on a corre- 
sponding scale, can be extended to articles of luxury in 



154 American Economic Association [888 

America to a degree not possible with less prosperous 
peoples. 

By selective dissociation through migration and by the 
stimulus of a favoring environment, the Americans are, 
as a people, "pushing" and energetic. The most that is 
in a man is likely to be brought out. But the dead level 
remains the same. In some there is nothing to bring out. 
American push and energy, therefore, when directed to 
economic acquisition, must inevitably emphasize inequal- 
ity of possessions. 

Work is by comparison the tradition and habit of all 
in America. ^^ When a scion of one of our multi-million- 
aire families recently reported "gentleman" as his occu- 
pation, the thing was commented on as new and inter- 
esting. The businesslike traits of the American are due 
very largely to the character of the example set by 
our "leading men". Family pride in a non-working, 
non-functional ancestry has not yet grown up among us, 
though the seed is germinating. 

Riches are the only form of secure power in the United 
States. Though this is a social, rather than a primarily 

" Birth "is a commodity that cannot be carried to a worse market 
than that of America, where people do not inquire concerning a 
stranger, What is he? but, What can he do?" (Franklin, VIII, 
p. 606). "There are no descriptions of men in America and 
very few individuals, at the active times of life who live without 
some pursuit of business, profession, occupation, or trade. All the 
citizens are in active habits." (Tench Coxe, View of the United 
States, p. 441.) "Amongst a democratic people . . . the notion 
of labor is presented to the mind, on every side as the necessary, 
natural, and honest condition of human existence. ... In the 
United States, a wealthy man would think himself in bad repute if 
he employed his life solely in living. It is for the purpose of escaping 
this obligation to work, that so many rich Americans come to 
Europe, where they find some scattered remains of aristocratic 
society, amongst whom idleness is still held in honor." (De Toque- 
ville, II, 184.) 



889] The Growth of Large Fortunes I55 

economic cause, it is too important to omit mentioning. 
It is often remarked that in America riches are the great 
road of ambition, if not the only road. This is partly a 
result of the thorough modernness of America. ^^ And 
many of the rich appear to find no better way to spend 
their time than in further accumulation. The public ser- 
vice is not automatically opened to the rich,^^ as to the 
leisure class of England. We have been busy developing 
our natural resources and have left politics to less able 
men.i^ For literature and art our rich are little qualified, 
certainly not in the first generation. 

Selective dissociation of the money-getters from the 
masses has been greatly facilitated by high wages and 
much free income, that is, income above necessaries, from 
which the savings for a start on the road to riches can be 
made. "Poor boys" are perhaps more numerous among 
those who have become millionaires than among our 
Presidents, and are only less often used as "shining ex- 
amples". But the pioneer period is past. In the future, 
growth from nothing will in every respect be less easy. 
It will be relatively as well as absolutely more difficult, 
because of the weight of riches already accumulated. As 
with our public lands, so in the field of investment, what 
is of most worth is already occupied. And previous 
accumulation itself is a factor, not operative under the 
Homestead Act, which promotes inequality in the latter 

field. 

Many of our rich are "in the make" still, though the 
output already has not been small. The making process 

" With money economy and modern conditions "the desire for 
wealth, as the means of gratifying the desire of social distinction and 
all else, became a much more important factor in economic affairs 
than it had been before." (Cunningham, I, 465-) 

"'Is the United States Senate an exception? 

'" Cf. H. C. Adams, The State in Relation to Industry, p. 71 • 



156 American Economic Association [890 

is the greater present danger to our social and political 
system. But the result of the process also, that is, high 
degree of concentration of ownership as an accomplished 
fact, is believed by many to be not consistent with our 
historic social and political institutions. 

It is possible that our development may not continue 
in the same direction. The evolution of capital and of 
abstract property may ultimately cure that high degree 
of economic inequality of which it has so far been the 
great cause. 



CHAPTER V. 

SUMMARY AND CONCLUSION. 

In conclusion let us restate the general facts involved 
in the foregoing argument. 

Large fortunes or riches .are a social phenomenon not 
personally but impersonally and economically caused. The 
great fortunes of to-day, as compared with the fortunes 
of previous times, are different in character as being not 
due to political causes. They are, moreover, not to be 
explained by the great ability of their possessors. Human 
nature is not different from what it used to be. Inequali- 
ties of ability are not greater. But the economic world 
is different. If a due proportion can be said to obtain 
between ability and economic situation, economic ability 
has never before come to its own, or else it is now getting 
much more than its share of material success.^ 

The great general cause of larger fortunes, that is, the 
circumstance of to-day which is different from that of 
fifty or one hundred years ago, is a difference in the 
amounts and forms of wealth, of ownership, and of 
income. This is the inclusive aspect of the various spe- 
cific causes, which, though with no claim to completeness, 
we have attempted tentatively to enumerate and analyze. 

^^t is these unequal faculties which give us unequal fortunes, and 
so long as they exist the inequality of conditions resulting must lead 
to unequal surroundings." (Wright, Atlantic Mo., vol. 80, p. 308a.) 
This is perfectly true. But it does not touch the question as to the 
justifiable degree and proportion of inequality. Professors Laughlin 
(Atl. Mo., vol. 96, esp. pp. 42b and 46b) and Sumner (Independent) 
have expressed themselves similarly to Pres. Wright. 

891] ^ . ' 157 



158 American Economic Association [892 

Since the Industrial Revolution there has been an enor- 
mous increase of productive wealth^ — an increase still pro- 
ceeding at an accelerating rate. The rich under barbarous 
and oriental conditions are rich in consumers' goods. 
The feudal rich possess the revenues of political power. 
The modern rich are such because of the dominance of 
capital in production and distribution. The great pre- 
condition to the growth of modern great fortunes has 
been this growth of productive wealth. 

Not merely in the amount of productive wealth, but 
also in the nature of productive instruments, the rich have 
been favored by technical and other developments of the 
last century. Large-scale production has become more 
and more dominant in all fields except agriculture. In 
order to be an entrepreneur on his own account under 
such conditions, a man must be or become rich. Or, there 
has been the alternative that the enterprises be owned by 
great corporations dominated by, and managed for the 
benefit of, the few who are financiers or capitalists. The 
development of urban realty and of mines has been as 
unprecedented as has been the growth of manufactures 
and commerce in the large. Such economic changes of 
the last generation or two have overshadowed all things. 

A remarkable evolution of forms of ownership has 
accompanied the growth of capital. The organization of 
investment has reached such a stage of differentiation 
that it is possible to meet the demands of those who want 
secure income without the responsibility of administering 
productive wealth. The appetite is of course large. The 
corporate, or stock-and-bond, form of organization is 
adapted to the needs of such investors. Paper property 
has the relation to large fortunes that the stock-organiza- 
tion has to large-scale production. Intrinsic hindrances 
to agglomeration of capital and also of riches are thus 



893] The Growth of Large Fortunes 159 

removed. Undertaking ability is overshadowed in both 
the productive-economic and the private-economic spheres. 
If there had been no corporate securities, doubtless in- 
equality would have found other food, but probably not 
anything upon which it could' have so flourished. 

Natural inequalities have, by the growth of capital. 
been raised to a higher power. If the abilities of two men 
are as i to 2, the economic inequality may be as i to 4, or 
as I to 16. The several inequalities, of ability and means, 
are bound to reinforce each other, with the result of in- 
creasing the degree of inequality, unless there is a ten- 
dency for one advantage to involve the absence of the 
other, or unless there is some natural check upon concen- 
tration. But the obstacles to concentration have been 
removed — in the first place by the provision of more and 
more material for fortunes, also by making it possible 
to concentrate riches without increasing the involved care, 
and finally by securing to the possessor what is already 
accumulated, regardless of care or capacity. Keeping 
riches once gained is easier than ever before. If there is 
any correlation of ability and energy with initial means, 
reinforcement of inequality results. In cases where there 
is not this correlation, the rich by inheritance nevertheless 
have a position which they can lose only by a destructive 
tendency amounting almost to madness. There is a cumu- 
lation of effects in the direction of economic inequality. 

The age is highly dynamic. New technical develop- 
ments and new economic institutions are ever in process. 
Place- and time-values have never before counted for so 
much. Under such circumstances, the rewards of the 
inventive, the persuasive, and the venturesome, are great 
indeed. Now is the harvest time of the business man, 
the promoter, and the speculator. Natural resources are 
being developed as never before. Real estate values, with 



i6o American Economic Association [^94 

intervals of reaction, are being multiplied by the growth 
of population. Prices of staple products fluctuate in re- 
sponse to conditions of world-wide range. Stocks are the 
sensitive spot where focus all the influences affecting 
credit and investments. All these contribute to value- 
increase and incremental income. 

The development of abstract property, the dominance 
of large-scale production, and the multiplication of op- 
portunities for gain from value-increase — these three 
phenomena which we have sought to trace in their various 
phases with regard to their influence on the acquisition 
and distribution of property — are all characteristic 
and distinctive traits of modern economic society. The 
growth of great fortunes, though not inextricably bound 
up with the permanent elements of this situation, is a 
natural result, or even but another aspect, of these modern 
tendencies. 

One of the remarkable phenomena of the last century 
has been the growth of cities. This concentration of 
population presents a certain analogy with the concentra- 
tion of property. The motives, which are respectively 
gregariousness and ambition, have always been there. 
Economic obstacles, to .obtaining sustenance prevented 
such concentration of population till the nineteenth cen- 
tury. The necessity of administrative activity for the 
receipt of income from wealth has hindered the concen- 
tration of property. Great fortunes and great cities have 
grown contemporaneously because of the increase of 
man's economic power. But economic improvements have 
also made possible or probable a swing the other way. 
Men now talk of the urbanization of the country and of 
giving to it equal attractiveness with the city. The dif- 
fusion of income from property among the majority, also, 
is now not less a practicable ideal, but more so, on account 



895] The Grozuth of Large Fortunes 161 

of the evolution of modern methods and institutions of 
investment. 

The notion that "the rich are growing richer, and the 
poor poorer" raises questions different from that which 
we have been examining. The poor are without doubt 
better off than they ever were before. So far as the 
latter half of the proposition quoted would deny this, it 
is false.- The study of existing conditions and tendencies 
in the material, as opposed to the human, factor in pro- 
duction, deals with a different question from that as to the 
adequacy and the tendency of the income of the "laboring" 
classes. Only the former question is related to the 
growth of large fortunes. The tendency to a rise in 
wages is one thing. The tendency to concentration in 
the receipt of income from the other agency contributing 
to production is another thing. 

Is the present situation such that a larger and larger 
proportion of men are becoming dependent exclusively 
on labor for their livelihood? The growth of large-scale 
production and of the wage-system makes it probable that 
such has been the tendency since the Industrial Revolu- 
tion. But there are important counteracting forces now 
at work. Is there undergoing, on the other hand, as 
regards those who possess more or less" of the other 
source of income, that is, property, a process of concen- 
tration into the hands of a few, and are sharper contrasts 
developing ? Or is the tendency one towards quantitative 
uniformity? With reference to the absolute number of 



' Pres. Wright's discriminating statement is : "To the investigator 
the real statement should be,. The rich are growing richer, many 
more people than formerly are growing rich, and the poor are grow- 
ing better off." (Atlantic Mo., vol. 80, p. 301b.) He further says: 
"It is not proposed here to discuss whether the poor get their relative 
proportion of the increased aggregate wealth. Emphatically they do 
not" (p. 302b). 



i62 American Economic Association [896 

large fortunes, if the stuff of which riches are made is 
increasing, of course it would be only normal for the 
number of rich men to increase. But it is easy to see 
how recent economic evolution has probably favored an 
increase in the proportion, not only of the absolutely 
large, but also of the relatively large fortunes. 

There is the bright side, too. Middle and lower class 
possibilities as regards income are, on account of the 
growth of the professional and salaried class, not less 
good now, but better than they used to be. Even as 
regards propertied income the tendency is probably now 
becoming more favorable to the middle and lower classes. 
The escape from the proletariat may be less possible in 
the United States than it used to be, but for the world as 
a whole the possibility is greater. 

This is a treatise of causes. Of the consequences of 
concentration of property, and of its remedies, we have 
here nothing to say. The ultimate judgment of society 
upon great incomes from property should be from the 
side of the use made of them. The best known of our 
American millionaires have practiced the precepts of a 
Gospel of Wealth in a way to prove that the moral 
limitations largely accountable for the great success of 
some of them in business are not so fundamental as to 
involve the absence of public-spiritedness in those most 
called upon to exercise it. We believe, however, that 
the social, including both the moral and political, influ- 
ence of so high a degree of concentration of riches as 
the present is, on the whole, evil. Some inequality is 
inevitable and also highly desirable. But inequality of 
natural endowment will, under any probable circum- 
stances, insure all the economic inequality that is needed. 
And the inequalities in men to which inequality of prop- 
erty should correspond are not of mere capacity to ac- 



897] The Growth of Large Fortunes 163 

quire wealth, but of capacity to use it well. We have 
too much concentration of riches. It threatens that 
equality of opportunity, and that spirit of individuality 
and self-reliance, which are essential to democracy. 

A class enjoying great incomes without labor is perhaps 
socially rather more dangerous than one administering 
productive wealth. But the more urgent present problem 
in the economics and politics of our country is how to 
curb the unbridled power of the active rich and their 
corporations. It is also true, however, that in magnitude 
and in number modern large fortunes are a new and 
fateful development which, by reason of their magnitude, 
may come to need direct attention from the constituted 
agent of society. 



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LBJe'OS 



The Growth of Large Fortunes 



A Study of Economic Causes 



AFFECTING THE 



Acquisition and Distribution of Property 



BY 



G. P. WATKINS 



[Reprinted from the Publications of the American Economic Association, 
November, 1907 ; in its monographs, Third Series, Vol. VIIT, No. 4.] 



